Frequently asked questions about the NZ-China FTA
What is the history of the negotiations?
In November 2004, New Zealand Prime Minister Helen Clark and Chinese President Hu Jintao jointly announced that the two countries would begin negotiating an FTA. The announcement followed a Joint Feasibility Study, which concluded that a high quality FTA could be expected to deliver positive benefits for both economies and recommended negotiating an agreement covering goods, services and investment.
The first round of negotiations of the FTA was held in December 2004. Negotiations continued over 15 rounds, held in both China and New Zealand. The negotiations concluded in Beijing in December 2007.
Why did New Zealand want an FTA with China?
Securing preferential access to China's economy has the potential to deliver significant gains to our exporters. China is the fastest growing major economy, currently growing at 9.5 percent each year. Already, China is our third largest trading partner. China's middle class is now estimated to be more than 100 million people and growing - which will fuel the demand for New Zealand's exports of goods and services. There should also be opportunities for investment in both directions.
Other countries are also looking to negotiate preferential trade agreements with China. Where others have preferences, New Zealand's FTA with China will help our exporters defend existing market shares-particularly in areas where China is already New Zealand's largest international customer.
Why was China interested in an FTA with New Zealand?
New Zealand has a very good relationship with China. China frequently recalls that New Zealand was the first developed country to conclude bilateral negotiations for China's accession to the WTO. China also appreciates New Zealand's non-discriminatory approach to applying trade remedies which provided the basis for New Zealand's extension of 'market economy' status to China in this area. This series of 'firsts' was added to when New Zealand and China launched the FTA negotiations (the first set of such negotiations China initiated with a developed country). There is now a fourth 'first': the signature of an FTA with a developed country.
What processes were involved for the FTA to enter into force?
Following the FTA signing ceremony, New Zealand's domestic parliamentary procedures for final approval of the FTA were set in motion. This involved the text of the FTA, along with the texts of the Memorandum of Understanding on Labour Cooperation (MOU) and the Environment Cooperation Agreement (ECA) (which are all treaties between New Zealand and China) and the associated National Interest Analysis being presented to Parliament for consideration, and also released publicly.
The FTA, MOU and ECA were examined by Parliament's Foreign Affairs, Defence and Trade Select Committee, which called for public submissions on the agreements. The Select Committee also examined the New Zealand-China Free Trade Agreement Bill, introduced to the House of Representatives on 19 May. The Select Committee issued its report on 30 June, concluding that the FTA was "of long term strategic benefit to New Zealand" and recommending that the enabling legislation be passed. The FTA Bill passed its third and final reading on 24 July by 104 votes to 17. The enabling legislation amended the Tariff Act 1988, Customs and Excise Act 1996, the Fair Trading Act 1986, the Electricity Act 1992, and the Radio Communications Act 1989. On 28 July, the bill received vice-regal assent and the Executive Council authorised amendments to regulations.
The final step in the ratification process was an exchange of notes with China, indicating the completion of domestic legal procedures for entry into force by both countries. With this achieved, the FTA was ready to enter into force on 1 October 2008.
Has China entered into similar FTAs with other countries?
The conclusion of the FTA negotiations represented the fourth in a series of 'firsts' in the bilateral trade relationship between the two countries:
- New Zealand was the first developed country to agree to China becoming a member of the WTO.
- New Zealand was the first developed country to recognise that China has established a market economy system.
- In November 2004, New Zealand was the first developed country to begin negotiating an FTA with China
- In December 2007, New Zealand was the first developed country to conclude FTA negotiations with China.
The FTA will result in other 'firsts'. It will be the first FTA which China has:
- Concluded as a 'single undertaking' covering goods, services and investment;
- Included commitments on MFN in services;
- Concluded a chapter on investment as part of an FTA;
- Covered all products with tariff commitments under the FTA (albeit with some tariffs - covering approximately 4 percent of New Zealand exports - not being eliminated) as opposed to its previous approach of excluding products from FTA coverage;
- Included substantive provisions on Technical Barriers to Trade (TBT) and Sanitary and Phytosanitary Measures (SPS);
- Included a mutual recognition agreement on electrical and electronic equipment (the EEEMRA) under which its authorities accept the results of testing, inspection and certification by Conformity Assessment Bodies accredited in another jurisdiction;
- Agreed to substantive commitments on intellectual property including a bilateral process for addressing concerns that arise in this area;
- Entered into a commitment (albeit of a political nature not subject to dispute settlement) to undertake bilateral negotiations on government procurement; and
- Concluded binding intergovernmental agreements on environment and labour cooperation in association with the conclusion of an FTA.
What other countries are looking to negotiate an FTA with China?
China has concluded free trade agreements with ASEAN, Chile, Pakistan and most recently Singapore. China is also currently negotiating FTAs with other countries, including Australia, Peru, South Africa and Iceland.
How does the FTA impact on our relationship with Taiwan?
New Zealand is careful to abide by the terms of our 1972 joint communiqué with China, according to which New Zealand recognises the People's Republic of China as the sole legal government of China. However, New Zealand also has economic and cultural ties with Taiwan, which is an important trade and economic partner. This relationship will be unaffected by the conclusion of an FTA with China.
How does the FTA fit into New Zealand's wider trade agenda - what about the WTO/APEC?
Trade negotiations carried out under the WTO framework, involving all WTO members, remain the top trade priority for New Zealand because these multilateral negotiations offer the largest potential gains. But the number of parties and interests involved in WTO negotiations means that progress is slow.
FTAs can open up important new opportunities for New Zealand exporters in a shorter timeframe than through the WTO. They allow New Zealand to accelerate progress towards more open markets by partnering with countries that share our same level of determination for progress.
Good quality FTAs can also usefully contribute to moving the WTO and APEC processes forward by highlighting the benefits of liberalisation. Closer Economic Partnerships and FTAs are under negotiation by most of our trading partners and have proliferated around the world - particularly in the Asia region. It is essential that New Zealand is part of this activity to strengthen economic links and obtain improved access to markets.
What are the key benefits from the FTA?
- The overriding objective of the FTA is to open up economic opportunities for New Zealand business in China, and to boost commercial ties with our third largest trading partner.
- The FTA will liberalise and facilitate the trade in goods and services and investment between China and New Zealand.
- An increasing number of FTAs are being concluded internationally and China is active in negotiating FTAs with other countries. The FTA will help New Zealand exporters and investors maintain competitiveness in the China market.
- New Zealand is the first OECD country with which China has concluded an FTA. The upfront outcomes in terms of commitments on goods, services and investment and the mechanisms which provide for further development of the agreement over time should help keep New Zealand at the forefront of the evolution of trade and investment relationships with China.
- The FTA has the further advantage of strengthening the relationship between the parties and establishing a framework for cooperation. It will be of assistance to the two countries working together within the WTO.
- The FTA supports New Zealand's objective of broadening and deepening relations in Asia and its wider trade policy interests in strengthening economic integration in the Asia-Pacific.
- It will also assist in raising the commercial profile for New Zealand companies in China.
What does the average NZ family stand to gain through an FTA with China?
The FTA is expected to deliver an increase in trade with China and positive economic growth in New Zealand, which should result in higher living standards on average for all New Zealanders.
Economic modelling undertaken as part of the Joint FTA Study, suggested that positive GDP, trade and welfare gains for both economies can be realised through the negotiation of a comprehensive, high-quality FTA.
What is the Government doing to support New Zealand businesses to make sure they take advantage of the FTA?
Since the signing of the FTA a whole-of government programme, led by the Ministry of Foreign Affairs and Trade (MFAT) and New Zealand Trade and Enterprise (NZTE), have been working to ensure that New Zealand businesses understand the content of the FTA and what it means from a commercial perspective. There has also been a focus on working with the private sector to build capability for the challenges and opportunities of doing business in China.
We are committed to working with the private sector on this, both in New Zealand, and in market through our network of off-shore embassies and consulates.
The dedicated NZ-China FTA website www.ChinaFTA.govt.nz , live since the time of signature, has provided businesses and the public alike with ready access to detailed information on the FTA. The site also provides comprehensive material on doing business with China, with the focus firmly set on enabling businesses to learn from the experiences of other businesses and experts in the market.
In late May and early June, an "FTA road show" visited the five main centres. These sessions allowed the private sector to learn about the substantive elements of the agreement directly from the negotiators and officials as well as providing an opportunity to attend targeted NZTE workshops on navigating the Chinese market. A condensed version of the road show was held in other New Zealand centres in September.
These activities are part of an ongoing series of initiatives on the path to market, designed to enable businesses to come to grips with doing business in China and to ensure that we are doing all we can to help businesses engage and improve their prospects of success in China. We will be organising promotional activities both in China and New Zealand to maximize opportunities to New Zealand business from the FTA.
What sort of trade barriers has New Zealand faced in China?
China has applied tariffs to most New Zealand merchandise exports, including dairy, fruit and vegetable and processed food sectors. There is also evidence of relatively high tariffs and tariff escalation "chilling" trade in a number of manufacturing and "value-added" areas. Regulatory and other non-tariff measures also exist in many sectors.
FTA will result in tariffs on 96 percent of New Zealand's current exports to China being eliminated over time. The FTA also encourages cooperation between relevant officials, regulators and technical experts to remove non-tariff barriers to trade. This will make New Zealand exports more competitive in the Chinese market.
What measures does the FTA contain to address non-tariff barriers to trade?
The FTA sets up a framework for both countries to work towards accepting each other's technical regulations as equivalent, and accepting the result of each other's procedures for sampling, testing and inspecting goods (conformity assessment procedures).
The FTA also has procedures for the resolution of Sanitary and Phytosanitary (SPS) issues when they arise. SPS measures are those relating to the protection of human, animal or plant life or health by preventing the introduction of pests and diseases, and to help ensure food is safe for consumption.
The FTA establishes a framework to avoid SPS issues arising, creating a mechanism for encouraging the two countries to recognise each others' SPS measures as being equivalent, and adaptation to regional conditions including pest or disease free areas.
How does the FTA address China's tariffs?
The FTA will eliminate tariffs on 96 percent of New Zealand's current exports to China. This equates to an annual duty saving of $115.5 million based on current trade. By the end of the tariff phase-out period, tariffs on all but $80 million of current exports to China (worth $2 billion) will have been eliminated.
The tariff reductions under the FTA will make New Zealand's exports more competitive in the Chinese market.
On entry to force, tariffs at or below 5 percent on over NZ$200 million worth of New Zealand's exports will be eliminated. This category includes certain types of fibreboard, fish meal for non-human consumption, scrap metal (copper and aluminium), coking coal and iron slag. In total roughly 35 percent of New Zealand's current exports to China will be duty free from entry into force of the Agreement.
From 1 January 2009, 75 percent of New Zealand's current wool exports can enter duty free under a country-specific quota.
Over the first 5-6 years, China's tariffs in the range 6-20 percent on NZ$621 million of current exports will be eliminated. Over 31 percent of New Zealand's exports to China are included in this category which includes infant milk formula, yoghurt, casein, frozen fish, frozen fish fillets, methanol, animal fats & oils, apples and wine.
Over the first 9 years, China's tariffs on NZ$77 million of current exports will be eliminated, including beef and sheep meat, edible offal, sheepskins and kiwifruit.
Tariffs on butter, cheese and liquid milk will be phased out over 10 years and tariffs on whole and skim milk powders will be phased out over 12 years.
What new export opportunities will the FTA open up for New Zealand?
Chinese tariffs on New Zealand products cost exporters almost $120 million each year. While China's simple average tariff rate is below 10 percent, the average rate on agricultural products is almost 15 percent. The FTA will open up new export opportunities through the removal over time of tariffs on 96 percent of New Zealand's current exports to China. The removal of these tariffs will deliver significant gains to our exporters.
By the end of the tariff phase-out period, tariffs on all but $80 million of current exports to China worth $2 billion will have been eliminated.
The FTA will also reduce non-tariff barriers to trade by encouraging cooperation between relevant officials, regulators and technical experts to remove non-tariff barriers to trade. This will make New Zealand exports more competitive. Similarly, the removal of restrictions around investment and the supply of services will deliver new opportunities for New Zealand businesses.
What are New Zealand's top exports to China? When will tariffs on these products be eliminated?
Dairy has an export value of NZ$363 million (average over 2004-2006) and amounts to 18 percent of New Zealand's total exports to China. Tariffs on Tariffs on some dairy products (including infant milk formula, casein, yoghurt and whey) will be phased out over 5 or 6 years. Tariffs on cheese, butter and liquid milk will be phased out over 10 years. Tariffs on milk powders will be phased out over 12 years.
Dairy tariff elimination is subject to a product-specific transitional safeguard mechanism and provision is included for a 'mid-term review' mechanism covering the tariff phasing on milk powders.
Wood and articles of wood
Wood and articles of wood have an export value of NZ$252.9 million (average over 2004-2006) and make up 13 percent of New Zealand's current exports to China. Wood pulp has an export value of NZ$170.5 million (average over 2004-2006) and makes up 9 percent of New Zealand's current exports to China. Almost 80 percent of New Zealand's current forestry exports (logs, sawn timber and wood pulp) already enter China duty free. The FTA will mean that the applied zero percent tariff on this trade becomes binding. That will provide some potential advantage to New Zealand exporters as China has scope in its WTO tariff bindings to apply a 1 percent tariff on logs and sawn timber.
There will be no tariff reduction under the FTA for some processed wood products and paper products exported to China. In total, these products account for 4 percent of New Zealand's current exports to China. This is because, as part of its accession to the WTO, China agreed that any preferential commitments it makes on wood and paper products in an FTA must be offered to all WTO Members.
Wool has an export value of NZ$167.1 million (average over 2004-2006) and represents 8 percent of New Zealand's current exports to China. Approximately 75 percent of current wool exports to China can enter duty free from 1 January 2009 (under a country-specific quota), with that initial quantity growing by 5 percent per annum until 2017.
Raw hides and skins
Raw hides and skins have an export value of NZ$110.8 million (average over 2004-2006) and amount to 6 percent of New Zealand's total exports to China. Most products are in the category for tariff elimination over 5 years. Those products which currently have a tariff of 5 percent or less will become duty-free on entry into force of the FTA. Tariffs on some products (sheep and goat skins) will be eliminated over 9 years.
Other food preparations
This category has an export value of NZ$93.3million (average over 2004-2006) and amounts to 5 percent of New Zealand's total exports to China. Tariffs on most of these products will be eliminated over 5 or 6 years.
Fish and other seafood
Fish and Seafood have an export value of NZ$90.1 million (average over 2004-2006) and amount to 4 percent of New Zealand's total exports to China. Other than for products such as live fish fry and shellfish for cultivation, most of which are already duty-free, tariffs on these products will be eliminated over 5 years.
Animal or vegetable fats and oils
These have an export value of NZ$64.8 million (average over 2004-2006) and amounts to 3 percent of New Zealand's total exports to China. Most tariffs on these products will be eliminated over 5 years.
Tariffs on beef and sheet meat and edible offal (which have a current export value of NZ$48.6 million) will be eliminated over 9 years.
Tariffs on kiwifruit (with a current export value of NZ$8.9 million) will be eliminated over 9 years and apples (with a current export value of NZ$5.2 million) will be eliminated over 5 years.
Why are tariffs being phased out over time?
It is standard practice in trade agreements to phase the removal of tariffs over time, so as to allow the sectors in each country that may be affected by imports from the other country time to adjust to the new trading environment.
The FTA contains longer tariff phase out periods for import sensitive sectors in New Zealand, such as textiles, clothing, footwear and carpets. There are slower initial tariff reductions for certain steel, plasterboard and whiteware products. Similarly, longer tariff phase out periods apply to some products, including some dairy products, kiwifruit and some meat and other animal products which China has identified as sensitive.
Why doesn't the FTA eliminate tariffs on 100 percent of New Zealand exports?
China has not made any bilateral tariff reductions under the FTA for a range of processed wood and paper products that account for approximately 4 percent of New Zealand's current exports to China. The reason for this is that, as part of its accession to the WTO, China agreed that any preferential commitments it makes on wood and paper products in an FTA must be offered to all WTO Members.
While China will not make tariff reductions under the FTA for these products, it has agreed that the WTO commitment mentioned above will apply to these products. This obliges China to give to New Zealand any preferential treatment that it offers to any third country and means that New Zealand exporters will not be at a competitive disadvantage vis-à-vis other suppliers to China.
Why will New Zealand's wool exports enter through a quota?
China operates a Tariff Rate Quota system under the WTO for a range of primary products including wheat, maize, rice, vegetable oils, sugar, some fertilisers, wool and cotton. The only product covered by a WTO quota in which New Zealand has significant exports is wool.
The FTA creates a special quota specifically for New Zealand wool exports. This allows China to retain its WTO quota while providing preferential treatment for New Zealand wool exporters.
Approximately 75 percent of New Zealand's current wool exports can enter China duty free from 1 January 2009 under a quota specifically for New Zealand wool. The initial quantity will grow by 5 percent annually through to 2017.
Why doesn't the quota cover 100 percent of New Zealand's wool exports to China?
It is disappointing that the initial level of the CSTQ equates to only 75 percent of current wool exports to China. However, the initial quantity will grow by 5 percent annually through to a cap of 36,900 tonnes for wool and 665 tonnes for wool tops in 2017. Any increases beyond that date will be by mutual agreement between New Zealand and China.
Will NZ exporters still be able to access the WTO wool quota?
Access to New Zealand's wool quota will not affect the right of New Zealand exporters to access China's existing WTO quota for wool. For any exports outside the New Zealand FTA quota in each year, New Zealand exporters will need to pay the applicable tariff, either within the WTO quota or the out-of-quota rate if the WTO quota is filled.
Why does the FTA provide China with a mid-term review mechanism for milk powders and a special safeguard on dairy products?
China considered that there is some domestic "sensitivity" about some dairy products, in areas where the Chinese industry is developing. New Zealand did not consider that a mid-term review mechanism or a special safeguard on dairy products were warranted given the small volume of imports from New Zealand relative to the overall size of China's fast-growing dairy sector. However, the inclusion of these mechanisms was necessary in order to secure China's agreement to full tariff elimination in the dairy sector over a commercially meaningful timeframe. The practical effect of the mid term review and the special safeguard mechanism is expected to be limited.
The mid-term review mechanism for milk powders allows a review to be conducted halfway through the phase-out period that at worst could result in a one-year extension to the overall tariff phase-out period for milk powders.
This extension can only be made based on objective evidence that increased New Zealand dairy imports have caused an overall negative impact on the Chinese dairy industry and if both parties agree to it.
The special safeguard is a temporary mechanism, available for China during the phase out period and for an additional 5 years once tariffs have been eliminated.
The safeguard allows China to apply an additional tariff (up to the WTO tariff level) for imports of the specified products (liquid milk, butter, cheese and milk powders) in any given year, if the imports go beyond a trigger level. The initial trigger levels are all at or above current export levels and grow at a rate of five percent compounding annually over the life of the mechanism.
What protections does the FTA contain from unfairly traded imports from China?
New Zealand has retained the ability to take trade remedy actions against unfairly traded imports from China which are dumped or subsidised and injure New Zealand producers, consistent with WTO rights and obligations.
The FTA contains a clear prohibition on any form of export subsidy in bilateral trade. This provides for a bilateral course of action against any such measures.
The ability to take global safeguard action is retained under the FTA. Global Safeguard measures are temporary measures designed to slow imports of a particular product from all countries, to enable a domestic industry to adjust to heightened competition from foreign suppliers. However the FTA provides for the possibility of excluding imports from the other party if such imports are non-injurious. This is potentially valuable for a small supplier such as New Zealand in any global safeguard action taken by China.
The FTA also contains additional bilateral safeguard measures. Under these measures, either country will be able to revert to higher tariffs for a limited period (of 2 years, which may be extended by 1 year) where there is 'serious injury' or the threat of serious injury to domestic industries caused by increased imports due to tariff reductions under the FTA. A provisional safeguard measure (for 200 days) may also apply in limited circumstances, before an investigation has been completed.
Does the FTA provide any assurance for New Zealand consumers regarding food safety and product standards?
Products from any country need to meet relevant standards in New Zealand. This applies whether or not we have an FTA with the country of origin of the product concerned.
Decisions on matters affecting New Zealand biosecurity and food safety will continue to be made and enforced strictly in accordance with our existing regulatory regime, and international obligations.
An FTA, however, can provide a framework for increased cooperation between regulators in enhancing standards and their compliance. The FTA has procedures for resolving Sanitary and Phytosanitary (SPS) issues when they arise. SPS issues relate to the protection of human, animal or plant life or health by preventing the introduction of pests and diseases.
The FTA establishes a framework to avoid SPS issues arising, creating a mechanism for encouraging the two countries to recognise each others' SPS measures as being equivalent, and adaptation to regional conditions including pest or disease free areas.
Will the FTA affect New Zealand's manufacturing base?
New Zealand businesses have operated in a relatively open economy for a number of years and have worked to shape their businesses to compete in a competitive global economy.
The views of New Zealand businesses were sought throughout the negotiating process and their interests with respect to China are diverse. Manufacturers that export directly to China, or who use imports from China as inputs into their products, will benefit from the elimination of tariffs on both sides.
Some manufacturers are concerned about the prospect of increased competition from China in the New Zealand market. The way New Zealand looks to take these concerns into account is through the phased removal of tariffs over time to help smooth any adjustment process.
The FTA tariff cuts are broadly consistent with phase outs under New Zealand's other FTAs. New Zealand is currently implementing a unilateral programme of tariff cuts through to July 2009 and during this period, the tariffs under the FTA in 'sensitive' product areas will not, in the majority of cases, be lower than the tariff under the unilateral tariff cuts. However, all of China's exports to New Zealand will eventually be duty-free.
When will tariffs on products in New Zealand's sensitive sectors be eliminated?
- 37 percent of Chinese imports already enter New Zealand duty free. This will rise to approximately 39 percent on entry into force of the Agreement.
- 25 percent of imports from China are in the textile/clothing/footwear sector. Tariffs on the most highly traded clothing and footwear products and some textile products (worth NZ$ 804 million based on current trade) will be phased out on a linear basis by 2016.
- Tariffs on carpet, the remaining clothing, footwear products and certain highly traded textile products (worth NZ$ 153.5 million based on current trade) will be phased out on a linear basis by 2014.
The FTA provides for phase outs for tariffs in the range 6-12.5 percent by 2012. This includes products such as whiteware, steel, plastics and furniture. Some less sensitive textile and clothing products are also included in this category. New Zealand has also retained a slower initial tariff phase out profile for particular steel and whiteware products to ensure that tariff reductions under the FTA in these product areas go no faster than under the unilateral tariff reduction programme through to 2009.
Why are Certificates of Origin needed for New Zealand exports under the FTA?
Goods exported to China require a Certificate of Origin in order to benefit from preferential tariffs under the FTA. As well as entitling exporters to tariff cuts, the certificates will provide exporters with greater certainty, as the Chinese Customs administration will be required to ensure that customs procedures are predictable, consistent and transparent. In the normal course of events, Customs administrations in both parties will be required to release originating products within 48 hours of arrival.
A Certificate of Origin shall remain valid for 12 months from the date of issue.
Will the Certificate of Origin system result in greater costs for New Zealand businesses?
Goods exported to China will require a Certificate of Origin in order to benefit from preferential tariffs under the FTA.
The New Zealand government has authorised three institutions to issue certificates of origin:
- Independent Verification Services Ltd;
- New Zealand Chambers of Commerce Inc; and
- Wine Institute of New Zealand Ltd.
The authorised bodies will charge for the cost of issuing certificates but the system has been designed to minimise those costs while being sufficiently robust to ensure authenticity. It is expected that the additional costs for businesses will be minor in comparison to the benefits of preferential access to China and the certainty that the certificates will deliver.
Why do Chinese imports into New Zealand not require Certificates of Origin?
In accordance with long-established practice, New Zealand will not require that certificates of origin accompany imports from China. Normal risk management techniques will provide sufficient assurance that only goods of Chinese origin under the rules of origin will receive the benefits of the FTA tariff preference.
When can a Declaration of Origin be used instead of a Certificate of Origin?
Where a consignment of goods has a value of less than US$1,000, or if an 'advance ruling' on origin has been obtained, a Declaration of Origin will be accepted in place of a Certificate of Origin. However, in most instances, a Certificate of Origin will be required.
What goods will qualify as originating from New Zealand?
Only goods which qualify as originating from New Zealand (and have obtained a certificate of origin or an 'advance ruling') will benefit from the preferences available under the FTA.
In general a good can qualify as 'originating' under the FTA if:
- it is wholly obtained or wholly produced in either China or New Zealand Typically these goods are natural-resource based goods such as farming or fishing products; or
- it is produced entirely in either or both China and New Zealand (with no imported material content), from materials that conform under the FTA. Materials originating in China that are used in the production of goods in New Zealand are deemed to be originating materials (and vice versa); or
- it is manufactured in either or both China and New Zealand using inputs from other countries, and meets the product-specific Rules of Origin and the other requirements specified in the FTA.
For any good to qualify for preference it must be consigned directly between the two countries. If transport involves transit through one or more other countries the goods must not enter trade or commerce there or undergo anything more than simple logistical processes, such as unloading and reloading, repacking, or any operation required to keep them in good condition.
How does the FTA determine the origin of goods that contain inputs from other countries?
The FTA predominantly uses a change of tariff classification (CTC) approach to determine origin. Under the CTC approach, a good will qualify in principle as originating if all materials from third countries used in the production of that good have undergone a specified change of tariff classification. Annex 5 to the FTA details the precise form of CTC that will apply to a particular good.
For some products there are additional regional value content (RVC) rules where the product must meet CTC plus an additional RVC requirement. For example, certain machine tools must meet a CTC rule plus 40 percent RVC. A small number of chemical products have a stand-alone RVC requirement and ships and boats have an alternative RVC requirement.
Some agricultural products must be wholly obtained from a party in order to qualify for tariff preference into the other country. For example, some meat products (fresh, chilled or frozen beef and lamb) must come only from animals born and raised in a party in order to qualify for preference.
What is the trade in services?
Trade in services covers areas such as tourism, education and professional services. Services can be supplied:
- by a provider physically located in one country, to a customer in another country (for example, over the internet) (Mode 1)
- by a customer travelling to another country to consume a service (for example, a student travels abroad to study) (Mode 2)
- by a foreign service supplier establishing a legal presence in another country to provide a service (for example, a company opens an office or enters into a joint venture in another country) (Mode 3)
- by a person travelling temporarily to another country in order to supply a service directly (Mode 4)
What benefits does the FTA provide for services?
For sectors listed in the services schedules to the FTA (and subject to the restrictions specified in the schedules), the FTA establishes the general obligation of national treatment and market access. The FTA also includes a reciprocal most favoured nation (MFN) provision that applies in specified sectors.
The national treatment obligation means that each country will treat service suppliers from the other country no less favourably than it treats its domestic suppliers in like circumstances.
The market access obligation means that each country should not be able to restrict access to their market in the form of limitations on foreign capital or on:
- The number of service suppliers, service operations or persons employed in a particular service sector
- The value of services
- The legal structure used.
The services chapter in the FTA does not apply to subsidies or government procurement or services supplied in the exercise of governmental authority.
The most favoured nation provision means that New Zealand exporters of services in specified sectors will automatically receive the benefit of commitments which China makes in future free trade agreements that are more liberal than those in the FTA. The obligation does not apply to treatment granted by either country to third countries under any previous free trade agreement.
New Zealand and China have also agreed to ensure that their domestic measures affecting the trade in services are administered in a reasonable, objective and impartial manner.
Which sectors are covered?
The FTA incorporates China's and New Zealand's existing WTO services commitments.
China has also committed to provide national treatment and market access for modes 1-3 services, going beyond its WTO commitments, in the following sectors:
- Computer and Related Services - including software implementation services, data processing services, and input preparation services
- Services related to management consulting
- Education (discussed in further detail below)
- Environmental services - an improved Mode 3 (investment in environmental services) commitment permitting wholly foreign-owned enterprises
- Sporting and other recreational services
- Air transport services - aircraft repair and maintenance services, and air travel computer reservation services, and
- Road Transport services - freight transportation by road in trucks or cars; maintenance and repair of motor vehicles; storage and warehousing services; and freight forwarding agency services.
New Zealand has also committed to provide national treatment and market access for modes 1-3 services, going beyond its WTO commitments, in the following sectors:
- Other Education Services (training provided in specialist language institutions, language assessment services provided through Chinese language testing centres, and tuition in subjects taught at the primary and secondary levels in specialist institutions operating outside the New Zealand compulsory school system)
- Environmental Services (the provision of consultancy services, and the delivery of services, across the full range of environmentally related services)
- Computer Services (Maintenance and Repair of office machinery and equipment, including computers; and other computer services)
- Photographic Services
- Duplicating Services
- Construction services (consultancy related to construction services)
Both countries have made MFN commitments in the following sectors:
- Construction services (construction work for buildings; assembly and erection of prefabricated constructions; installation work; and building completion and finishing work)
- Environmental services
- Services incidental to agriculture and forestry; China's commitment applies only to agreements China concludes with the countries (including New Zealand) which are members of the OECD
- Engineering services
- Integrated Engineering services
- Computer and related services,
- Tourism services
Why do only certain sectors benefit under the FTA?
Although New Zealand did not achieve commitments from China in as many sectors as it had hoped, China's existing commitments in the WTO context are of relatively high quality. The commitments in the FTA go beyond those existing commitments and give an advantage to New Zealand service suppliers.
The services chapter also contains a review clause which provides an opportunity to pursue greater liberalisation over time.
What are the existing barriers to the trade in services?
Examples of barriers to trade in services include:
- Different rules or requirements for foreign companies compared to Chinese companies which are designed to give Chinese companies a competitive advantage
- Requirements for foreign companies to employ a certain percentage of Chinese nationals or to enter into a joint venture with a Chinese company.
Does the FTA result in any gains for the Education sector?
China has made a binding commitment to include on the China Ministry of Education "Study Abroad Website" the eight New Zealand universities, the twenty Institutes of Technology and Polytechnics, Te Wananga o Aotearoa, Te Whare Wananga o Awanuiarangi and Te Wananga o Raukawa, and six degree conferring Private Training Establishments duly approved and accredited by the New Zealand Qualifications Authority.
China has also agreed that both parties will work together to evaluate quality assurance criteria for qualifications, including for distance education and to explore possibilities for mutual recognition of respective vocational qualifications.
Will the FTA result in an increase in Chinese workers coming to NZ?
The New Zealand government would not contemplate any agreement which would prove a threat to the wages and conditions of New Zealand workers. Minimum wage and labour, health and safety laws are not negotiable.
The FTA does facilitate the temporary entry of skilled Chinese workers to fill gaps in the New Zealand labour market, but the numbers of entrants is very limited and there are a number of conditions that apply.
Temporary employment entry to New Zealand for up to three years, without labour market testing (but subject to specified qualifications and work experience requirements and the requirement for a bona fide job offer), shall be granted to a total of up to, at any one time, 800 skilled Chinese workers at any one time in the following occupations:
- 200 traditional Chinese medicine practitioners (including traditional Chinese medicine nurses)
- 200 Chinese chefs
- 150 Mandarin teaching aides
- 150 Chinese "Wushu" martial arts coaches
- 100 Chinese tour guides.
In addition, a maximum of 1000 skilled Chinese workers at any one time shall be granted temporary employment for up to three years, in specified occupations where New Zealand has a skills shortage. Entry will be limited to no more than 100 workers in each occupation at any one time.
How does New Zealand benefit from the temporary employment entry of Chinese workers?
Although involving only a limited number of Chinese workers, these commitments may help to ease labour shortages in the context of New Zealand's current tight employment market. Should the labour market in New Zealand loosen in the future, the requirement that such workers hold a bona fide job offer, and meet specified qualifications, work experience and registration requirements, will protect conditions for New Zealanders.
Who can come to New Zealand under the Working Holiday Scheme?
Alongside the FTA, New Zealand has established a working holiday scheme with China. The scheme provides for a maximum of 1000 Chinese nationals per year to enter New Zealand for one year. The scheme will allow young, skilled Chinese to engage in tourism and incidental employment in New Zealand and may assist in meeting labour shortages in areas such as the hospitality and horticulture and viticulture industries.
Are there temporary entry provisions for New Zealanders travelling to China?
Under the FTA, New Zealanders visiting China for business purposes, including services suppliers, investors and goods sellers will benefit from faster and more transparent visa application processing. China will also process applications for temporary entry or temporary employment entry visas within 10 working days of a being received.
In specified sectors, China has also agreed to extend the maximum stay of New Zealand business visitors to six months, compared to the 90 days given to business visitors under China's WTO commitments. Intra-corporate transferees employed as managers, executives or specialists will be granted a work permit for the length of their contract or for an initial stay of three years in China, whichever is shorter.
Are there temporary entry provisions for Chinese business people travelling to New Zealand?
In specified service sectors (education, environmental, computer, photographic, duplicating and construction services), Chinese executives or managers who have been employed by their employer for at least twelve months prior to their proposed transfer to New Zealand may enter for an initial stay of up to three years, which may be extended for a further three years if the need for the executive or manager still exists.
New Zealand has also made a commitment to create a new group transit visa for Chinese nationals.
Are there temporary entry provisions for Chinese students coming to New Zealand?
New Zealand has made a commitment to provide a decision within 10 working days on student visa applications where the applicant has an offer of place in a degree-level course from an accredited New Zealand tertiary institution that has been enrolling Chinese students for at least two years, and the student meets health and character requirements.
How will the FTA benefit investors?
Both New Zealand and China have agreed to treat investors and investments of the other country (once those investments are established) at least as well as they treat their own investors ('national treatment') subject to an exception for existing measures that are not in conformance with this obligation, and consistent with the treatment extended under each country's existing bilateral investment treaties. (New Zealand already has such agreements with China and Hong Kong, China.)
Both countries have also agreed to extend to each other any better treatment relating to investment that is given to third countries ('most favoured nation treatment'), except in respect of fisheries and maritime matters.
The MFN obligation does not apply to treatment granted by either country to third countries under any previous free trade agreement.
Does the FTA contain protections for New Zealand investors in China?
The FTA contains protections for investments:
- Compensation for losses arising from war, armed conflict and similar situations;
- Protection against expropriation and guarantee of fair and equitable treatment. This protection means that the Chinese government may not unfairly expropriate or nationalise the investments of New Zealand investors;
- Subject to specific limitations, the free transfer of all payments relating to an investment, including capital necessary for establishing the investment, and the returns generated from that investment.
The FTA also provides a mechanism for the compulsory settlement of disputes between foreign investors and the country in which the investment is made. If a dispute cannot be settled within six months through consultation and negotiation, and unless the parties to the dispute agree otherwise, a New Zealand investor can have recourse to international arbitration against the Chinese government.
The existence of this mechanism will enhance the protection of New Zealand investments in China through providing New Zealand investors with the same kind of recourse to dispute resolution processes outside the Chinese legal system as that enjoyed by investors from a number of other OECD countries.
The mechanism is subject to a number of provisions designed to safeguard a government's right to regulate and avoid exposure to frivolous expropriation claims.
What are the benefits of the EEE MRA?
The FTA contains an agreement on the mutual recognition of conformity assessment for electrical and electronic equipment (EEEMRA).
The EEE MRA aims to:
- Facilitate trade by making it easier for New Zealand exporters to meet China's testing, inspection and certification requirements;
- Assist New Zealand regulators to manage risks relating to electrical safety and electromagnetic compatibility (EMC);
- Reduce language barriers as much as possible;
- As a result, support consumer confidence of electrical and electronic products being placed on the market.
What does the EEE MRA cover?
The EEE MRA does not cover all electrical and electronic equipment and components. It concerns electrical and electronic products that are subject to the China Compulsory Certification (CCC) system and to the requirements of New Zealand supplier declarations of conformity for such products.
As other electrical and electronic equipment are subject to different requirements in China, those products will be the subject of separate negotiations.
Some examples of product categories covered by the EEEMRA are:
- low voltage electrical apparatus
- electrical tools
- household and similar use appliances,
- lighting electrical appliances
How will the EEE MRA benefit New Zealand exporters of electrical and electronic products?
Instead of needing to send products to China to check compliance with Chinese standards, the necessary tests, inspections and certifications may be carried out in New Zealand. If a product complies with Chinese standards, the Chinese certification (CCC) mark may be applied in New Zealand.
How will the EEE MRA benefit importers of Chinese electrical and electronic products?
Chinese manufacturers may have their products tested, inspected and certified in the same way as they would if the products were to be sold on the Chinese market but taking into account the specific product standards required by the New Zealand regulators.
What effect will the EEEMRA have on New Zealand standards for electrical and electronic equipment?
The EEEMRA will not have any detrimental effect on New Zealand standards for electrical and electronic equipment. It preserves the sovereign right of each country to set and apply mandatory requirements in relation to the covered products and to take any measures deemed necessary in relation to non-compliant products.
The FTA incorporates the provisions of the WTO TRIPS Agreement as relevant into a bilateral context and provides mechanisms to implement it. This means that New Zealand rights and obligations vis-à-vis China under the TRIPS Agreement are actionable under the FTA, as well as in the WTO.
The FTA also requires China to notify New Zealand of any new laws that enter into effect in relation to intellectual property and to exchange information on developments in its intellectual property policy and systems, including regarding enhancement of intellectual property rights enforcement.
Each country has agreed to establish and maintain transparent intellectual property rights regimes and systems that:
- Provide certainty over the protection and enforcement of intellectual property rights;
- Minimise compliance costs for business; and
- Facilitate international trade through the dissemination of ideas, technology and creative works.
The parties have agreed to cooperate on eliminating trade in goods infringing intellectual property rights, subject to the laws of each party.
A consultation mechanism means that New Zealand can request consultations to seek a timely and mutually satisfactory solution on any intellectual property issue within the scope of the FTA.
The Treaty of Waitangi clause in the FTA is aimed at ensuring that the FTA will not prevent the New Zealand government from taking measures to fulfil its obligations to Maori, including under the Treaty of Waitangi. This is the same provision as the New Zealand- Singapore Closer Economic Partnership, the New Zealand-Thailand Closer Economic Partnership and the Trans-Pacific Strategic Economic Partnership (P4).
The creative arts provision in the "General Exceptions" article was included in order to clarify that New Zealand can take action to support creative arts of national value. The provision has a caveat to say that measures to protect "creative arts" cannot be used as a disguised restriction on trade. The relevant provision in the FTA does not constitute a exclusion for the creative arts.
In addition to the exceptions relating to the Treaty of Waitangi and creative arts, the FTA contains exceptions to ensure that each government retains decision-making powers in areas of national importance.
Provided that such measures are not used for trade protectionist purposes, the FTA will not prevent New Zealand from taking measures necessary to:
- Protect human, animal or plant life or health, or public morals;
- Protect national works, items or specific sites of historical or archaeological value;
- Conserve exhaustible national resources.
The FTA will not prevent New Zealand from taking any actions necessary to:
- Protect its essential security interests;
- Respond to serious balance of payments issues or financial difficulties.
Taxation measures are also largely excluded from the Agreement and there are limits on the requirements to disclose information if to do so would be contrary to public interest or to law.
New Zealand and China have agreed to carry out a general review of the FTA within two years of the Agreement coming into force and every three years following the initial review. Reviews will be carried out by the FTA Joint Commission. The Commission will consider any proposal to amend the FTA.
Any amendment will be subject to the agreement of the parties and completion of necessary domestic legal procedures.
The FTA includes a robust government-to-government dispute settlement process to resolve disputes that arise over interpretation or implementation of the FTA.
As a first step, consultations will take place. If consultations fail to resolve the issue, an arbitral tribunal may be established under the dispute settlement procedures.
If either country is found to be acting inconsistently with the FTA (i.e., is not conforming to the FTA), then that country's benefits under the Agreement may be suspended or it may need to pay compensation.
Both parties also retain their ability to take an issue to the WTO as an alternative to dispute settlement under the FTA.
There were practical barriers to including provisions on Competition Policy in the FTA. China has only recently passed anti-monopoly laws and has not yet established its administrative structures under the new laws to deal with competition issues.
China has not yet completed negotiations on its accession to the WTO Agreement on Government Procurement and wanted to wait until after that process was complete before addressing Government Procurement in an FTA.
In a joint understanding concluded in association with the FTA, China has agreed that as soon as possible following the completion of its accession to the WTO Government Procurement Agreement (GPA) it will begin bilateral negotiations on government procurement with New Zealand.
Pending its accession to the GPA, China is obligated to conduct its government procurement in a transparent manner and extend MFN treatment to all WTO members including New Zealand.
How does the FTA deal with labour and the environment?
In line with the Government's 2001 Frameworks on Integrating Labour and Environment Standards in Trade Agreements, a Memorandum of Understanding on Labour (MoU) and an Environment Cooperation Agreement (ECA) were negotiated and concluded at the same time as the FTA.
Like the agreements concluded alongside the Trans-Pacific Strategic Economic Partnership (P4), the MoU and the ECA are binding. The agreements are referenced in the Cooperation Chapter of the FTA, which provides that New Zealand and China are to enhance communication and cooperation on labour and environment matters through the MoU and the ECA. While the FTA is in force, the parties are thus expected to cooperate under the MoU and the ECA.
Together the FTA and these associated instruments will help to mutually reinforce the objectives of raising working standards and environmental protection in both countries.
What does the Memorandum of Understanding on Labour mean in practice?
The purpose of the MoU is to improve dialogue and conduct cooperative activities on labour matters, including in the following areas:
- Labour laws, policies and practices, including social dialogue, and raising the awareness of the legal rights and obligations of employers and employees, to realise decent work;
- Compliance and enforcement systems and labour inspection;
- Sound labour relations, including management labour consultation, cooperation and labour dispute settlement;
- Working conditions;
- Human capital development, training and employability: and
- Promotion and protection of the employment rights and obligations of migrant workers.
Each country is required to appoint a coordinator to facilitate communication between the two countries and to seek funding for cooperation activities. There will be regular meetings between senior officials and the two countries to meet within 90 days to "assist in the resolution" of any issues that arise.
The MOU provides opportunities for governments to seek input on implementation from union representatives and non-government organisations and make provision for public participation in cooperation activities.
What does the Environment Cooperation Agreement mean in practice?
Under the ECA China and New Zealand will engage on cooperative activities in relation to environmental management, environmental remediation, nature conservation, and technologies (including systems and processes) for environmental benefit, including in the following areas:
- Management of water environment
- Coastal ecological conservation and pollution control
- Air pollution control and monitoring
- Improvement of environmental awareness, including environmental education and public participation
- Management and disposal of waste including hazardous waste
- Environmental management of chemicals
- Environment and trade
- Biodiversity conservation, and
- Other areas mutually agreed upon.
Each country is required to appoint a coordinator to facilitate communication between the two countries and to seek funding for cooperation activities. There will be regular meetings between senior officials to establish a program of cooperative activities and serve as a channel for dialogue.
The ECA provides opportunities for governments to seek input on implementation from non-government organisations and make provision for public participation in cooperation activities. The ECA also encourages the two countries to promote direct contact between their respective environmental protection organisations, enterprises and municipalities, research institutions and other entities.
Why is New Zealand entering a trade agreement with China given its human rights record?
New Zealand attaches importance to dialogue with countries on human rights, including China. We discuss human rights and rule of law matters regularly with the Chinese Government, using a variety of channels. These include ministerial and official consultations, exchanges between the New Zealand Embassy in Beijing and Chinese counterparts, and our annual bilateral Foreign Ministry Consultations.
New Zealand and China have entered into a Memorandum of Understanding on Labour, consistent with the Government's 2001 Framework. Human rights issues are addressed using separate channels.
FTA considerations have not constrained the dialogue we have with China on human rights or where we encourage China to comply with universal human rights standards, and to ratify the International Covenant on Civil and Political Rights. New Zealand also raises and promotes human rights causes at the United Nations. This human rights engagement existed before the FTA negotiations commenced, has continued throughout the negotiations, and will do so after the FTA is concluded. It is an important element of our bilateral relationship.
While recognising important areas of difference between New Zealand and China on human rights, it does not follow that ending economic relationships or political dialogue with China is the best way to promote human rights there. Nor does New Zealand have the luxury of trading only with countries with similar political and social values as ours. Were we to do so, there would be a great many countries with which we would be excluding an economic and trading relationship. That would hurt New Zealand without advantaging those whose human rights we want to enhance.
What is the New Zealand view on the situation in Tibet?
New Zealand followed developments earlier this year in Tibet closely. We expressed concern about the violence and loss of life and called on China to manage the situation in a restrained and proportionate manner. We have also reiterated our longstanding hope that dialogue among Tibet representatives and the Chinese authorities can be established so as to find solutions to the issues facing Tibet. Our position on Tibet has no implications for the FTA.
- Page last updated: 02 July 2010