New Zealand-China Free Trade Agreement Bill

Hon ANNETTE KING (Acting Minister of Trade) Link to this

Today I am acting on behalf of the Minister of Trade, the Hon Phil Goff, who at this point is overseas representing New Zealand’s interests in further trade talks. But I know that he would want me to convey to the Committee his gratitude for the work that was undertaken by the Foreign Affairs, Defence and Trade Committee in examining this bill, which was recently before the select committee, and for its recommendation to this House that there be no amendment to it.

I think that members of this House have, in the main, worked very constructively on this bill, knowing that it will have a major impact on businesses in New Zealand. It allows our free-trade agreement with China to come into force. The signing of the agreement with China is a very significant achievement for this Labour-led Government.

Before the free-trade agreement was signed with China our exporters faced extra costs and charges when they tried to sell their products and services to the Chinese market, which is a very large market for us. They faced tariffs of up to 20 percent, making it harder for them to create the jobs and the wealth that can come from trade. That is because the Chinese tariffs on New Zealand products cost exporters almost $120 million a year. When it is easier because of this legislation for our Kiwi companies to do business, we will all benefit. Our companies will be able to expand and hire more staff, develop new products, and grow our economy. The Prime Minister, who has also been very instrumental in this deal, which came out of our work with China, said that the agreement sets a high standard and that it is a model for how two trading partners, disparate in size but complementary in the products and services they offer, can take a trading relationship to a new level.

Support for the free-trade agreement has come from many, many different quarters. For example, the agreement is supported by the Council of Trade Unions, the Dairy Companies Association of New Zealand, Federated Farmers, Air New Zealand, Fonterra, the Hospitality Standards Institute, Ngāi Tahu, Meat and Wool New Zealand, the National Distribution Union, Zespri, Business New Zealand, the Seafood Industry Council, the Wellington chamber of commerce, and many others. The agreement is widely supported by many organisations in New Zealand, whether they are businesses, organisations that represent our tourism industry, or part of our union movement.

The bill has two Supplementary Order Papers. One divides the bill into the Tariff Amendment Bill, the Customs and Excise Amendment Bill, the Radiocommunications Amendment Bill, the Fair Trading Amendment Bill, and the Electricity Amendment Bill, and a second one amends clause 2 to state that Parts 1 and 4 will come into force on 1 October 2008 rather than by Order in Council. The Committee is about to debate the Supplementary Order Papers and the bill itself. I commend this bill to the Committee, and once again I thank members for their very constructive approach across the political divide in supporting this legislation and the advantages that will flow from it for New Zealanders.

TIM GROSER (National) Link to this

First of all I acknowledge amongst the Government’s advisers the presence of my former colleague Dr David Walker. I congratulate him and his team on the assiduous effort they have put in over a number of years to produce this agreement, which I described yesterday—and outside the House—as of potentially historic importance to New Zealand’s long-term trading prospects.

Today as we go through the Committee stage I will start by addressing some of the arguments against the New Zealand - China free-trade agreement, and I will start with the political case against it—the linkage with human rights—which, I think, is very important. Some other arguments of an economic character, which I think are fairly weak arguments, have been used, but obviously in terms of the broader public debate and the media attention it was the linkage with human rights issues that attracted attention. It is important to have some commentary around that to put it into perspective.

In this respect it is important to define what the difference is for the two main parties and, I am sure, for some of the smaller parties. The issue is not about the primacy of human rights. I do not want to get involved in a philosophical discussion about where in the hierarchy of human needs, human rights stand vis-à-vis things like poverty elimination. The underlying reality is that members of this House are absolutely at one on the absolute importance of proper respect for human rights. I think we would all also have the view that the human rights situation in China is far from perfect. So that is not the issue; the issue is whether we should therefore have turned away at the last minute from this trade agreement because that record is not perfect. On that, we have taken the view on this side of the House, as has the Government, that that would have been a catastrophic strategic misjudgment.

I want to explain in my own language why I think that is the case. On the first point there is another debate there about New Zealand interests. I cannot recall which great diplomat of the past said this, but it might have been Talleyrand: “If you don’t look after your country’s interests, no one else will.” But that is not the point we are discussing today. We are discussing whether it is even remotely plausible that not proceeding to trade with a country—and a free-trade agreement is simply a mechanism for accelerating trade between two countries, so it does not differ intrinsically from the concept of trading with a country—would in some sense help the position on human rights.

When we start to drill down into this argument, we come across, I think, a position that is completely implausible. First of all, I doubt that there is a country in the world—no doubt, including our own—that does not have, in some dark corner of the closet, some issue in respect of human rights that we would rather not hear about and that would not stand up to close international scrutiny. Fortunately, we live in a country where such issues would be few and far between but I am sure that they exist, according to the views of many people. So if we were to take the view that we should not form free-trade areas or find other avenues for accelerating trade with countries that have a less than perfect human rights record, what would we really be doing?

For a start, I would argue that we would be excluding trade with all developing countries, because in some generalised sense it is probably fair to say that few developing countries—as much because of the greater problems of poverty and want that face them at this stage in their development—have a larger measure of problems in terms of human rights than others. We would then turn round and say: “Well, what about Australia?”. No doubt there would be people who would stand up and say that they did not think too much of the apology that Prime Minister Kevin Rudd made to the first people of Australia, and that we should therefore pull out of the CER free-trade agreement. We might go systematically through all the countries of the world and find that actually there is nobody who meets our high standards and that we should therefore not trade with them. That is the first issue. When we drill down into it I think we come up with a completely implausible position. It is essentially an argument for economic autarchy.

The second aspect of this, putting aside New Zealand’s interests, is the question of whether it is even likely that this is the right way to advance human rights. I think, then, that we have to come down to a view that says this: every country that has gone through stages of development has had serious problems in terms of human rights. We can take our children—or in my case, grandchildren—to the Tower of London, we can go to see the torture chamber, and we can find that this of course is now an object of tourist delight. Well, we know that it was not put into the Tower of London as an object of tourist delight, and that inside the political antecedents of our very own country are torture, gross abuse, lack of habeas corpus, and the lack of the fundamental freedoms that underwrite a decent society such as we have in this country. So all countries have had this in their past, or their derived past, if you will.

The idea that we can somehow suddenly achieve the standard of excellence that some submitters expect in one hit—and only when that standard has been achieved will they be in a moral position fit for a free-trade agreement with New Zealand—is, frankly, not only ludicrous, when one drills down into the practicalities of it, but also representative of a fundamental misunderstanding about how this all-important issue of human rights is advanced in the real world. Although I would never want to buy into the argument that in some sense human rights are a relative issue and cannot be divorced from the state of economic development, I think it is stretching all the empirical evidence to suggest that there is no linkage between higher levels of economic development and increasing respect for international trade.

I have never been a believer in trade embargoes, not just because of New Zealand’s interests but because I fundamentally do not believe that they work. I have often used the following example. Nobody could think of a more extreme trade embargo to achieve political objectives than the American trade embargo on Cuba that has been in place since around 1957—for over 50 years. At the time when Castro took over power, American trade was responsible for 90 percent of Cuba’s exports, but there has been a trade embargo ever since. I have always taken the view that if Fidel Castro is a God-fearing man—and he may well be, because my understanding is that he was brought up by Catholics and may now be returning to that stage in life where he starts to be a God-fearing man—I would argue that he should be down on his knees every day of his life to thank God for the American trade embargo. I do not believe for one minute that he would be in power if the Americans had overrun Cuba with McDonald’s franchises, investment, American tourists, and American trade. That is why I am deeply sceptical about trade embargoes for political reasons.

Hon ANNETTE KING (Acting Minister of Trade) Link to this

It appears to me that members would like to roam widely in this debate—

KEITH LOCKE (Green) Link to this

I raise a point of order, Madam Chairperson. Mr Groser gave quite a talk on human rights. Given that he was not stopped and that many of his comments were directed, partly, at the views that the Green Party holds, in fairness I think it would be in order for some response to be able to be made.

TIM GROSER (National) Link to this

I support my colleague Mr Locke on this matter. I think it is entirely appropriate, given the importance of this matter, for us to start with some general comments. I am well aware of Mr Locke’s views. I have put forward my contrary view, I would like to hear his response, and then I think we can proceed with a more technical and detailed examination.

Dr WAYNE MAPP (National—North Shore) Link to this

I raise a point of order, Madam Chairperson.

Dr WAYNE MAPP (National—North Shore) Link to this

Madam Chairperson, you have directed us to concentrate strictly on Part 1, and indeed on all the subsequent parts. There was no issue of a vote. Leave was sought and denied, and we simply said we would follow the rules. No vote was taken on the issue, at all. There was never a question of a vote, and I remind you, Madam Chairperson, that it is not an issue of taking a vote; simply, any one member can seek leave.

Part 1 deals directly with the reduction in tariffs. That is how the free-trade agreement works. What is the purpose of a free-trade agreement? It is to introduce free trade. What stops free trade? Tariffs stop free trade. In the trade between New Zealand and China, many goods—in particular, goods in the agricultural sector—suffer high tariffs. In addition to that, there are typically quotas, as well. A free-trade agreement by definition—and under World Trade Organization (WTO) rules—is designed to eliminate tariffs between the parties to that free-trade agreement at a faster rate than would otherwise be the case. Otherwise, the parties would be going just by their bound commitments under the World Trade Organization, and that would not be dealt with until the Doha round itself was dealt with. In this instance China and New Zealand, for strategic reasons as much as trade reasons, have decided to go for no tariffs and no tariff quotas on all trade between our nations. That will be achieved by 2019. That is the point of Part 1. That is the very particular legislation being introduced by Part 1—an amendment to the Tariff Act and the tariff codes thereof.

The remarkable thing about this is that New Zealand First is going to vote against Part 1 because it is not fast enough. One of the things I would like to know from the speakers of New Zealand First is how fast they think it should have been. Do they think there should have been full free trade between our two countries by, let us say, 2010 or 2012? I guess most New Zealand businesses would say that that would be a jolly good thing. But was it actually achievable? Was it ever likely that China would agree to eliminate all tariffs in 2 or 3 years? No, that would be an idle pretence. More particularly, New Zealand First knows the truth of that. Those members know that this is actually an excellent free-trade agreement.

If we look at the history of free-trade agreements, we will see that seldom, if ever—particularly where agricultural products are involved—are tariffs and tariff quotas eliminated completely within a 10-year period. That is an extraordinary precedent, and I congratulate the officials, led by Dr David Walker, on the extraordinary achievement they made on that. A major country like China, with major agricultural potential but vulnerable, with its small farmers, to trade from New Zealand, has nevertheless decided to allow full free trade in all temperate agricultural products, or in any agricultural products that New Zealand happens to produce—and we are an efficient producer of agricultural products. That is unlike other Asian nations that are always concerned to protect their small farmers. So China, a major agricultural producer, is willing to accept full free trade of our agricultural products, which will be started from 1 October this year. So the first changes will occur very quickly.

The committee heard from Fonterra, New Zealand’s single largest exporter, that it has already concluded arrangements worth $300 million. I also say that one of the things I have always found extraordinary in respect of ministry officials and official ministry documents is that they say there might be an increase, as a result of this agreement over the 10-year period, of maybe $300 million in trade. I have always wondered how that sum could possibly be so small.

MARTIN GALLAGHER (Labour—Hamilton West) Link to this

I will take a very brief call, because I know that Dr Mapp, notwithstanding his very comprehensive delivery to the Committee, really wants to get this bill through.

Dr WAYNE MAPP (National—North Shore) Link to this

I will continue to elaborate on the points I was making about the way Part 1 initiates the free-trade agreement by reducing the tariff schedules down to zero by 2019. It is a remarkable achievement by the officials to get that outcome in the negotiations. I note that the Government must take some credit for driving the negotiations in that way. Clearly, it takes a high-level push from the Government to be able to drive forward that level of success. I know that the Minister of Trade, and indeed the Prime Minister, were actively engaged with the Chinese Government to that effect. I think we have to consider just what a tremendous achievement that is.

I was saying, when I was closed off—if you will—that the Ministry of Foreign Affairs and Trade said there would be only a $300 million gain per year in a 10-year period—at least, by 2019. I have always thought that that is an absurd proposition. I choose those words carefully. Trade is already worth $2 billion. Is the ministry seriously suggesting that the effect of a free-trade agreement a decade from now will be only 10 percent of the current levels of trade? That does not seem credible, because it ignores the fact that it is not just about the potential gains we will get by the tariff reduction of 20 percent; it is actually about the relative advantage we will have over all other nations.

It is a well-known theory of free-trade agreements that one of the advantages countries seek is not just the growth in trade between countries but also trade diversionary effects from other countries. Although China might currently buy meat, grain, and dairy products from a range of countries, it will now divert that trade to New Zealand because we will have a 20 percent price-competitive advantage over all other nations once the agreement comes into full effect. People act before the reality of that full effect, which is why Fonterra was able to get the $300 million deal now, in anticipation, because the trend is already established. People act on the basis of the final effects, not just on the initial effects.

The second point I make as to why that $300 million gain has to be an underestimate is that once trade is boosted, total demand goes up. China is growing extraordinarily rapidly—even now, at a rate of 10 percent per annum. Even now, several hundred million people are able to spend $10 a day, or more, on advanced products in China. At 10 percent growth per annum, that will increase rapidly, and the demand that this agreement will generate in China will be far greater than a simple 10 percent increase in trade over the course of a decade. I predict that within 5 years China will be New Zealand’s single largest market. Trade will be largely in agricultural products, but it will also be in services, tourism, and so forth.

I say to the Māori Party that Māori organisations understand that advantage. That is why they came to the Foreign Affairs, Defence and Trade Committee and were so enthusiastic about the agreement. They saw the potential to grow a market, and that is what the reduction of tariff barriers does. It does not just divert trade; it leads to total growth in international trade. If we want a comprehensive demonstration of that, we have only to look at the European Union. The establishment of no tariffs right across the European community did not just divert trade from, say, New Zealand to Britain; it hugely increased the economic potential of Europe, and Europe has gained immensely over the 50-odd years since the establishment of that free-trade agreement. This agreement will do the same for New Zealand and China, and for other countries that join in, as well. It will not just lead to trade diversion; it will lead to a massive and total increase in trade and prosperity. That is the gain of Part 1.

KEITH LOCKE (Green) Link to this

I think Wayne Mapp is using parallels that are not particularly appropriate here when he talks about the European Union, because the example of the European Union is of economies that are at a relatively similar stage of development.

JOHN HAYES (National—Wairarapa) Link to this

I have heard some nonsense talked in this Chamber, and that speech was a significant contribution in that sense. My colleague from the Green Party, Keith Locke, talked a load of nonsense.

But before I climb into that I would like to acknowledge the officials who are here today, particularly my ex-colleagues from the Ministry of Foreign Affairs and Trade, who are led by David Walker. I would also like to publicly thank Simon Murdoch for his leadership in this process. What has been really good about the process is that it has involved officials from across a whole range of Government departments. It is good to see our departments working together in the same way that we in this Chamber are working across political divides this afternoon. So I extend my congratulations there.

I was particularly interested in the freedom and latitude you gave the previous speaker, Madam Chairperson, because clearly he was not in any sense talking about Part 1. Part 1 talks about removing tariffs and amends the Tariff Act 1988. As I said in the House last night—obviously, our Green colleague did not hear me—there is no fairer trade than free trade. Mr Locke talked about one of the arguments brought to the Foreign Affairs, Defence and Trade Committee, and I can talk about a group called New Zealanders with a Conscience that gave us a four-page submission outlining their concerns that the Government would get less income because it was going to drop tariffs, and that the Inland Revenue Department would fall into deficit.

That is a particularly serious problem that our committee addressed, and the submitter argued that small businesses would close down as a result of these tariffs being reduced. On page 2 of its submission the group says that the agreement “would cause a great drain on the Government purse”. I really have to say that the select committee members, across all parties, disagreed that that would be the outcome. The point is that as a select committee we decided that this bill—which I think is the most significant piece of legislation to pass through this Parliament in the last 3 years—will contribute to making New Zealand an open and competitive economy, and will give us strong links to the rest of the world. China is showing other countries that it too is prepared to engage more strongly internationally by dropping its trade barriers.

Trade liberalisation policies go back at least 25 years in this country, and the moves that we made with the CER agreement 25 years ago have enabled our economy to be in the strong position it is in today to make these tariff adjustments without having a significant impact on companies that operate in our community. I think that the removal of most tariff and other trade barriers with China, as foreshadowed in Part 1, will improve resource allocation in New Zealand, contribute to economic growth, and also lower prices for consumers.

My Green colleague has gone, but the point about free trade is that no buyers pay more for a product than they want to, because if they are asked to pay more and they do not want to pay, then there is no transaction. That is a fundamental point not understood by New Zealand First, not understood by the Green Party, and not understood by the Māori Party, and it is really important that the community understands that point. For the same reason, the economic adjustment faced by industries will be small compared with those adjustments that would have been required when import licensing existed 30 or 40 years ago—when our economy was protected by high tariffs. I have been around many businesses in my community, and of the 20 or 30 people I have talked to only one person has said that bringing tariffs down and allowing cheap Chinese machinery imports is going to be a bit of a problem and have an impact on his business. I am thinking now of Rob Saxton in Greytown, the town where I live. He is the Stihl agent, and his products are quite highly priced, but they are of high quality. Consumers choose whether they go that way or go to Bunnings warehouse and spend $10 or $15 on an instrument that is perhaps less robust. This is what free trade is all about.

CHRIS AUCHINVOLE (National) Link to this

My colleague Wayne Mapp said yesterday: “Traders are waiting for us to do our legislative work so they can get ahead and reap the gains of the agreement.” That is very, very true, and it is with pleasure that I rise to speak on Part 1 of the New Zealand-China Free Trade Agreement Bill. Part 1 is the mechanism that reduces the barriers while at the same time providing safeguards.

The barriers to trade are very, very real when one does not have free trade. I reflect on what the previous speaker said: free trade is fair trade. Exporters do not have an easy task, but it is an honourable one and it is one that, like it or not, the rest of us live by. So what will be the effect of this free-trade agreement? The tariffs on 96 percent of New Zealand’s current exports to China will be eliminated by 2019. Two-thirds of all of New Zealand’s goods will be tariff free within 5 years. What a wonderful opportunity has been created, and I would like to add my compliments to the officials, to the Ministry of Foreign Affairs and Trade, and to everybody who has been working tremendously hard to achieve it.

There are many ways of penetrating a market. There are probably as many ways of penetrating a market as there are exporters involved in the trade. I reflect back on a career in the Dairy Board. With the difficulties associated with quotas, with the endless conflict, and with the challenges for access, it was amazing that we had the trade we did have—and what an effort it took!

The task of the free-trade agreement is to reduce and eradicate the unnecessary blockages. So how do those blockages occur, and why do we have to have the transitional aspects that occur in Part 1? The blockages generally occur through apprehension on the part of manufacturers and local producers. If we look at the Common Agricultural Policy—which was a huge blockage to progress, and everybody acknowledged it was not sensible—we see they occur from fears of privation, from fears of starvation, from the experience of war, and from the experience of countries being unable to feed their people. We go right back to the basic law of the provision of food, shelter, and clothing being a Government’s first responsibility to its people. So food has always been an incredibly sensitive, delicate issue, and tariffs were a way of giving protection. They have been used clumsily, though.

When I think back to trading in the Pacific, I know that the Pacific offers New Zealand exporters tremendous trading opportunity. We have markets that are operated under French—

Hon GEORGINA TE HEUHEU (National) Link to this

I am very pleased to take a call on the Committee stage of the New Zealand-China Free Trade Agreement Bill. I have heard the snipes coming across the floor from New Zealand First—my colleague Wayne Mapp referred to them earlier—and from Winston Peters who, when this deal was originally signed, said that it is not good enough and we need more, and I am absolutely waiting for New Zealand First members to take a call and to hear what their objections are all about.

This free-trade agreement has been negotiated with the overriding objective of opening up economic opportunities for New Zealand business in China. A growing part of New Zealand business is Māori business. As my colleague Dr Mapp also mentioned, representatives from Māori business came to the Foreign Affairs, Defence and Trade Committee and went through what they saw as the huge advantages for Māori business.

I want to paint just a little bit of the context. This agreement is historic. It represents a challenge and a huge opportunity for Māori. In the current environment, where over the last 10 or 15 years we have seen the quite substantial return of significant fish, forestry, land, and other assets to Māori tribes—and that will continue over the next 10 years—this agreement is a major marker for what will happen going forward. Part 1 of the bill deals with the removal of tariffs. That could not be timelier for Māori business potential as we go forward.

I think we are all, particularly in this House and in the private sector, pretty much aware now of the growing asset base of Māori. It is estimated to be anywhere between $9 billion and $15 billion and it is growing—it is huge. We also know that its future is dependent on export—exporting goods to China and to the world. We all talk globally now, and free trade is what goes with a global economy. Free trade is absolutely critical, and the removal of tariffs and other trade barriers is the core of the free-trade initiative that has started with this and will no doubt grow.

According to Hui Taumata 2005, Māori enterprises are concentrated in export-oriented areas, primary production, and processing, and about 60 percent of Māori commercial assets are reliant on international trade. This is significant. It is significant because 96 percent of Chinese tariffs and trade barriers will be removed by 2019. That is a huge achievement. That is not far away; it is just around the corner. An example of where Māori interests will benefit is in the fisheries industry, with the removal of tariffs imposed by China on products such as live lobster and pāua, which are currently around 25 to 35 percent. We do not really have to think very far forward to see the immediate impact that this removal will have on Māori business and Māori exporters, and certainly for the long term as tribes get their assets and organise their governance arrangements.

There is a big challenge, of course. Treaty settlements were one part of this equation and we all thought that was hard; actually the harder part is coming now. We are on to the harder part now: nurturing those assets, growing them, creating wealth, and making sure we have access to world markets. The market in China is the biggest one could want to be in—the absolute biggest. Māori exporters are already going up into China; they have been for at least the last 5 years in a small way, but that is growing. As I say, there is no doubt whatsoever that free trade is the hallmark for growing Māori potential in the business and export sector going forward.

SUE MORONEY (Junior Whip—Labour) Link to this

I move, That the question be now put.

TIM GROSER (National) Link to this

Madam Chair, first of all, let me give you my personal assurance that I have taken note of your harsh, but possibly just, ruling. I shall make carefully targeted points about Part 1, which after all is—to use plain language—the meat and potatoes of the agreement.

The preferential rates are very important, and I will illustrate the underlying point about this in a couple of different ways. First of all, we take Dr Mapp’s earlier point about the competitive edge and we look at it in terms of one example that comes to mind, which is wine. I stand to be corrected, but from memory the most favoured nation rate on wine imported in bottles into China is 14 percent. For a country that enjoys, as we do, the privilege of having the highest per-bottle price in the world—believe it or not—on the largest wine market, which is the London market, having this competitive edge will be of considerable benefit. There is absolutely no truth in the belief that the countries in Asia that are seeing the emergence of the middle class will not move into consumption of these products, and I think New Zealand wine exporters will benefit enormously from this competitive advantage. That is the first basic point that I make about the tariff reductions.

The second point is that I want to address some criticisms about the allegedly slow pace. First of all, I do not consider it slow at all by the standards of most trade agreements, particularly coming on top of the major liberalisation that China itself has undertaken in the context of its accession—or readmission, according to the official script—to the international trading system. I use the term “roughly a decade” to describe the overall totality of a complex tiered formula that has been negotiated on tariffs. I do not consider it a long period of time at all, particularly when we look at the profiling of our major exports in relationship to that timetable.

The other point I would make is about the automaticity of this process. In Part 2 we will come to the question of safeguard measures and contingency protection devices, which qualifies us a little bit, but I do not believe in any important way. When we come to look at the automaticity of this process, this is a very, very important qualifier to any criticisms about the slow pace. What is quite clear—and we have seen this in a variety of different trade agreements; I saw it 20 years earlier in respect of the Australia and New Zealand Closer Economic Relations Trade Agreement—is that when businesses know what the end point is, they can get ahead of that end point and accelerate the process. We had literally within weeks a spectacular example of that in the signing of the deal by Fonterra, our largest goods exporter, worth some $300 million over a period of time. Fonterra took advantage of tariff reductions that literally had not even come into legal effect, for the very simple reason that we are here today in this Committee enabling the legislation to go through to have that effect.

So already we have seen that this is not theory; this is how the market works. If we put in place what looks to some a modest pace, finally—within reason—it does not matter. The automaticity of the process is what matters. Then people can get ahead of the programme, as we have already seen.

The second point is in relation to tariff reductions, when we measure them with these econometric exercises. I have been involved in many of these exercises. Although they are highly sophisticated in terms of their methodology, personally I do not think they are particularly useful. They omit what in earlier times were called x-efficiency gains by economists—or the dynamic effects, in more plain language—and almost always seem to me to understate the importance of the tariff liberalisation process. The mere reduction of tariffs is one part of it, but the stimulatory effect in terms of actual company business also matters.

My own view is that this will have what is called demonstration effects, which has been much commented on internationally in the literature around trade agreements, and which will be particularly strong in this agreement. The reason I believe this is to do with the Confucian nature of the society we have negotiated this agreement with. When China designates New Zealand as a preferred tourist destination—I imagine that if the Australian Government did that, we would all fall around the floor laughing, along with our Australian cousins—I believe the signal to Chinese businesses will be considerable.

Dr WAYNE MAPP (National—North Shore) Link to this

I raise a point of order, Madam Chairperson. I have sought this point of order because you indicated earlier that there would be only one more substantive call. I am aware of the rule that states that once you accept a closure motion, that is it and it cannot be contested, so it is important that I raise the point of order now.

I raise it in two parts. The first part relates to the general significance of this legislation. It is widely acknowledged and recognised, including by the Government, that this is the most significant economic legislation to be passed, certainly this year and realistically in this term, by this Government. I believe therefore that a proper level of debate is required. Part 1, as we all concede, is the core of this agreement. To have a debate that is not even an hour long is, frankly, not appropriate. The second point is that all of the discussions so far, by all of the speakers, have actually been on Subpart 1, “Implementation of preferential tariffs under New Zealand-China Free Trade Agreement”. There has been no discussion as yet on Subpart 2, which actually covers six clauses in relation to safeguard measures—virtually no discussion on it whatsoever. The reason for that, of course, is your strict ruling earlier, and we understand why you made that ruling in terms of the Standing Orders. We felt that we should therefore deal explicitly with tariffs in Subpart 1, and then we would move on to deal explicitly with the issues addressed in Subpart 2. To accept a closure motion now would effectively deny members the ability to have any debate whatsoever on Subpart 2 of this very, very important legislation.

MARTIN GALLAGHER (Labour—Hamilton West) Link to this

It seems to me, with due respect, that the Committee did have the choice of having a very wide-ranging, comprehensive debate in which multiple calls could have been taken. Leave was sought for that and leave was denied. Consequently, I understand you then had to go back to the Standing Orders and that you were bound by the Standing Orders, leave having been denied.

JOHN HAYES (National—Wairarapa) Link to this

I raise a point of order, Madam Chairperson.

MARTIN GALLAGHER (Labour—Hamilton West) Link to this

I move, That the question be now put.

TIM GROSER (National) Link to this

I want to address the issue in Part 2 of import certificates of origin, and to give a view about the ultimate purpose of this issue. In doing so, I might say I apologise to you, Madam Chair, if this appears to be another lecture, but when one has a situation where the Opposition is actually supporting the Government, it is very difficult. One might want a vicious disputation, but that is not going to happen in the passage of this bill.

A couple of points are very important to the question of certification. The first relates to the rules of origin and the other relates to the use of the devices of contingency protection—in particular, anti-dumping and safeguard actions. Without certificates of origin these mechanisms simply cannot operate.

In respect of rules of origin there has been a lot of criticism of the free-trade agreement strategy centred on the metaphor of the spaghetti bowl. This criticism essentially says that the proliferation of free-trade agreements is creating impossible administrative obstacles for traders. It is an argument made against free-trade agreements of this type. Personally, I have for years believed this to be grossly overstated. I do not think that New Zealand exporters will now be confused in their trading relationships with China, as a consequence of the rules of origin that will prevail. In many cases this illustrates a lack of understanding about how administratively, in practice, rules of origin are actually handled. I do not think this is as fundamental a problem as the critics would have it. We can establish ex post facto, through certificates of origin that are provided for in Part 2, what are truly Chinese goods in the case of imports into our customs territory or truly New Zealand goods in terms of the substantive provisions relating to rules of origin.

The second point, which I think is probably more real from the point of view of domestic concerns about this trade agreement, relates to anti-dumping measures. Certificates of origin are crucial to safeguard all devices of contingency protection. If there is agreement to apply measures, or in some cases not to apply measures, to goods of one’s free-trade partner, then one needs certificates of origin to establish what the goods are. In the course of the submissions we were told—and it was an echo of the debate one hears internationally—that this agreement will not work because of the provisions relating to unfair trade. It is very important, I think, to define the concept of fair and unfair trade in traditional terms. In this 5-minute call on Part 2, I will not get involved in a broader discussion of the swampland territory we would get into if we expanded beyond the traditional definitions, but I will focus on anti-dumping.

Certainly, it is fair that our companies need protection from dumped imports. We have a longstanding procedure in this country to deal with this, and I just want to address the criticism that the free-trade agreement will not work. That criticism is entirely misplaced, and in the course of this inquiry we asked for some very simple, but very powerful, analysis to be produced on the application of anti-dumping orders to goods of Chinese origin, not just in our customs territory but around the world, since China joined the World Trade Organization in 1995.

Far from substantiating the critique: “Nobody can apply anti-dumping orders to China.”, we found that 27 countries—a mix of developed and developing countries, including our own—have applied anti-dumping orders, or anti-dumping measures, to goods of Chinese origin, and in each case they would have been required to apply certificates of origin of the type provided for in Part 2 of this bill. Even more important, in only one case did the Chinese authorities choose to contest this, and, as at the time of drafting the select committee report back, that was still in the process of going through the World Trade Organization dispute settlement procedures, which, as members would be aware, are highly complex. In other words, all but one of these 327 measures have been applied successfully. I think we should have every confidence in the provisions.

CHRIS AUCHINVOLE (National) Link to this

The legislation that kicks open the door to the future does not, in itself, furnish the room beyond. When I looked at Part 2, I thought that this is a very good safeguard measure that has been introduced. Certificates of origin, perhaps seen just as a bureaucratic part of an export job, are far more than that.

I remember having a discussion on certificates of origin and the need for them, particularly on generic products like consumable butter and that sort of thing. We were designing a new wrap for New Zealand butter and it had to comply with certificates of origin; the French customer in this particular case required the word “beurre” on it. The question from the product division was why butter is butter, and we responded: “When did you last buy a wrapped product without English on it?”. We like to see, we like to know, what we are purchasing and, increasingly, we like to know where it is from. That is very, very important from a consumer’s point of view.

KEITH LOCKE (Green) Link to this

I am glad that Chris Auchinvole has talked about the importance of knowing the origin of products and that we have had all this talk about certificates of origin. That is very good, but it seems to me that certificates of origin are only the first step. Sure, it enables the country of China to find out that the goods are coming from New Zealand and to get that legitimation and vice versa—and hopefully we will get certificates that these goods are genuinely coming from China—but that is for the bureaucrats. The bureaucrats will know that, but what about the people? This Government, supported by the National Party, has refused to adopt the Australian procedure of having compulsory labelling of the country of origin on food products. It absolutely refuses to go along with that and, surely, that is in contradiction to everything that the National Party speaker has just said.

Sue Kedgley had a member’s bill, which was supported by the Māori Party and New Zealand First, to enable us to be in tandem with Australia. It would have offered consumers—in this case, Australian and New Zealand consumers—the choice between particular products based on their country of origin and also the choice to have the right to do so. When we raised those issues in Parliament we got lectures from Annette King and Phil Goff, who said that it was only a question of food safety. They said that the Government guarantees food safety, that anything coming from China or anywhere else is guaranteed to be safe, and that that was all we needed to know. We said that consumers have a right to know and to make a choice on whatever basis they liked. Consumers might not like the human rights situation in the Sudan or Zimbabwe, and they might make a choice on that basis if they wanted to.

So even though the National Party talks about freedom and all the rest of it, it will not allow the citizens of New Zealand the freedom to choose on any basis they want whether they accept the product in terms of its country of origin. It is a basic democratic right.

Chinese garlic is already coming in and selling at a few cents a bunch, and it is completely undermining the New Zealand domestic product. Most consumers, when buying that garlic, do not know it comes from China and they do not know about the conditions it is produced in. They do not know which toxic materials may be associated with it. They know nothing about that because it is not labelled, and they should have the right to have it labelled.

Why should we be against the Australian position—the democratic position in Australia—on this question? It just shows that this free-trade agreement is not about helping the New Zealand people to make proper choices or anything else.

Dr WAYNE MAPP (National—North Shore) Link to this

I was going to talk specifically about Part 2 and about the purpose of Part 2, which, I might add, is an imposition on the New Zealand manufacturer. This is a change to New Zealand law, actually, not to Chinese law, and it is worth remembering that point. It is worth thinking about the origin of certificates of origin. That point has been addressed significantly by Tim Groser and Mr Chris Auchinvole, and addressed tangentially, I guess, by Mr Keith Locke.

The whole point of a free-trade agreement is that it regulates trade between two particular countries. That is axiomatic, obviously. But we have to know whether the products came from those two countries, and to know that the countries do not act as trans-shipment points for products from other countries that would then seek to take advantage of the free-trade agreement and to have a covert free-trade agreement using the good offices—or, indeed, the bad offices—of one or other of the countries. Certificates of origin are about authenticating that goods have come from one country and are going to another country.

Historically under the GATT and the World Trade Organization, this has been measured by way of percentage. Goods have had to have a minimum of 60 percent, which was subsequently changed traditionally to 50 percent and then 40 percent as manufacturing became increasingly globalised. Most manufactured goods, for instance, would consist of products from literally all over the world, and the original view of 60 percent simply was unsustainable. Many goods would have a much greater percentage of overseas inputs, so the percentage went down. That is not the contemporary way, because, as globalisation has further developed, what is being looked at now is not so much percentages—which are increasingly hard to measure anyway; they would impose huge compliance costs on the manufacturers in New Zealand and would in many respects negate the advantages of having a free-trade agreement—but the transformation of the goods, the process that occurs in the manufacturing of the goods.

The question is whether a process has occurred through the New Zealand manufacturing that would, therefore, entitle the goods to have a new origin. It is not about percentages but about whether a manufacturing process has taken place. The same rule now exists in CER, and I recall that that was not the case originally. So free-trade agreements have had to evolve as we have had much more global trade.

A huge number of elaborately transformed goods, as the term used to be known, consist of goods from literally all over the world, and measuring percentages is extraordinarily difficult. That is particularly true of a country like New Zealand. By definition, we do not have a comprehensive manufacturing base, where all inputs could be sourced in New Zealand and there could be a high degree of reliability that we would reach the 60 percent or 50 percent of whatever is being made. But we can easily identify whether a process has occurred in New Zealand. That is easy to measure and easy to police for both the New Zealand authorities and, for that matter, the Chinese authorities.

Looking at it from the other perspective, of New Zealand’s importing goods from China, there are the same rules. It does not really matter so much, because China has a comprehensive industrial structure where basically all the inputs will be manufactured in China, and there is a high degree of reliability that the goods exported from China to New Zealand will be Chinese. That is not the case with New Zealand.

Of course, members will note I am talking primarily about industrial goods. Agricultural goods, by definition, are different. It is relatively easy to determine whether goods are sourced in one country. Even though the labelling may not have to be in the store, from a customs point of view, it has to be demonstrated that the goods were sourced from one country or another. If we take the situation of agricultural exports from New Zealand to China, we still have to be able to demonstrate that the goods actually originated from New Zealand.

JOHN HAYES (National—Wairarapa) Link to this

I will speak in the context of Part 2, and follow my colleague Dr Mapp and the assertions he was making. I thought it might be interesting to consider Part 2, where we are amending the Customs and Excise Act 1996 in the context of agricultural produce. For example, when I was ambassador in Iran one could find kiwifruit, but they were of a particular size and shape that was not quite the same as kiwifruit that originated in New Zealand. One could find wool being passed off as New Zealand wool, and Chinese meat in the Iranian market being passed off as New Zealand lamb. The point about the certificates of origin is that they guarantee to the importing country the source of the goods—that the goods had originated there. So in following this process through, in these amendments to the Customs and Excise Act foreshadowed in Part 2, we are protecting the interests of New Zealand agricultural exporters.

It is easy to produce a pound of butter and put a wrapper around it asserting that it is made in some other country. I do not particularly want to finger countries, but I promise members that it happens. Other documentation is required, also, as part of this process—for example, halal certificates certifying that meat shipments are of animals killed in the appropriate Islamic fashion. We are giving the importing country—in this case, China—a level of satisfaction that the products entering their market under the certification of the New Zealand authorities are what they say they are. In the same way, there will be a similar process at the other end of this telescope, in China, where the Chinese system will be working to give us exactly the same guarantees and certificates, so that we can have satisfaction in this market that we are getting products from China.

In this general context of Part 2, at the select committee we got a submission on this bill from the Christian World Service expressing concern. The Christian World Service felt that poor countries always start on the back foot in trade negotiations, which were, it said, carefully controlled by the richest countries to further their own interests. Well, whether a country is rich or poor, I think every country works to advance its own interests, and we are doing that in the context of Part 2 and the rules we are implementing, which will enable those guarantees to be given. The Christian World Service felt that the communities it was working with—for example, in the Philippines and Mexico, which are increasing agricultural production to feed their people—had seen large-scale migration off the land. But that has nothing to do with the issues we have had to consider under Part 2. It seems to me that we are actually helping other developing countries, particularly those around the Chinese border—for example, Cambodia and Thailand—so that when products get exported to us from China we know that they have come from China and have not slid in under a barrier from another country that might have lower costs of production than those found in China.

Hon GEORGINA TE HEUHEU (National) Link to this

I follow my colleagues in speaking on Part 2, which makes amendments to the Customs and Excise Act 1996. Under clause 13, the part provides “for a system of issuing New Zealand certificates of origin in relation to goods being exported to China under the Free Trade Agreement between the Government of New Zealand and the … People’s Republic of China”.

This is a very important part, and I take issue with the Green member who said it was just all about what bureaucrats did. I do not think I am misrepresenting him—at least, I hope not—but I took that to be what he was saying, and then he said that these provisions were really of no importance. But we have Minister Mahuta in the chair and she, as much as anybody, knows the importance of the mark of a product, the essence of a product. Of course, Māori have something similar in terms of our cultural products with the Toi Iho mark, which gives a guarantee of quality, of high craftsmanship, and also of some of the wairua that has gone into those products carrying that mark.

Immediately it is easy to see why this part is so important. I would be interested in the Minister taking a call just to confirm and reaffirm how important this part is, and that it is certainly not just about bureaucrats and what they have to do; it is about a guarantee of quality. In that sense it is a protection for the product, it is a huge protection for the consumer—the buyer—and it is a protection for those whose transactions send goods by way of export between the countries involved. As I say, it is somewhat like Toi Iho.

Yes, this is about free trade. It is about boosting our ability to trade with other countries around the globe and to remove barriers that inhibit free trade. But it is not about open slather, either, and we owe it to New Zealanders in the first place, and to all those who will be buyers and consumers in China, that there is a brand attached to our products that gives all those people an assurance of the quality and of the essence of those products.

The CHAIRPERSON (Hon Marian Hobbs) Link to this

We are debating Part 2 of the New Zealand-China Free Trade Agreement Bill. By agreement of the Committee we are considering this bill part by part, which has necessitated a narrow debate on each part. The option was offered to the Committee of having a wide-ranging debate; that leave was refused, so we are applying the rules of debate quite strictly. There have been six speakers on Part 2, and the final speaker was the Hon Georgina te Heuheu, who has 43 seconds remaining. She is not here, so are there any other speakers to Part 2? There are not.

The CHAIRPERSON (Hon Marian Hobbs) Link to this

This debate includes the Minister Hon Phil Goff’s amendments set out on Supplementary Order Paper 215.

TIM GROSER (National) Link to this

I will take a brief call on Part 3, “Amendments to Radiocommunications Act 1989”. According to my understanding, the purpose of Part 3 is identical, in a sense, to Part 5, “Amendments to Electricity Act 1992”, in that they are the two principal Acts affected by the mutual recognition agreement covering electrical and electronic equipment. I will make brief comments about some aspects of the agreement in relation to Part 3, and when we debate Part 5 I may take another call to look at some other aspects.

This is a highly technical subject, and we should be aware that this debate is linked to deep concern, not just in New Zealand but right throughout the world, about the relationship between standards and international trade agreements. Some people popularly refer to such agreements—deeply misleadingly so—as a “race to the bottom”. The opponents’ view, which is a complete misreading of what this agreement is about, is that by entering via the globalisation framework into trade agreements of this type, countries like New Zealand or the United States are in some way agreeing to lower their standards to those of other countries—in this case a very large, developing country—and that that is “appalling”. That is actually a completely wrong interpretation of what this agreement is about.

In terms of both the mutual recognition agreement and the broader context of the World Trade Organization and other trade agreements, there is nothing to stop New Zealand adopting the standards it wishes to adopt in relation to consumer safety. There is no race to the bottom. There is no reason for New Zealand consumers to be even slightly concerned that this trade agreement will in some way mean a lowering of safety standards on electrical and electronic equipment—far from it. As far as I am aware—obviously I lack technical expertise in this area—we have standards equal to anywhere in the world to protect New Zealanders from poor wiring. We all know we are talking about something that is—potentially—literally lethal. I assume—because I am not aware of a large political debate in this country over this issue—that we have quite adequate safety inspection systems in place. I know that we have issues relating to poor wiring in terms of electrical fires, but I am not aware, for example, of children routinely being electrocuted while opening the fridge, which is, fundamentally, what this issue is about. When we debate Part 5 I will make some other comments about the whole concept of mutual recognition, because it is a very interesting feature of the agreement. I have to say I am surprised, in the pleasant sense of the word, that we have come to an agreement, given some of my own experiences in negotiating mutual recognition agreements. It is quite a credit to the negotiators that this agreement is in place.

The remaining point I want to make relates to the competitive edge that this agreement gives to New Zealand in terms of the recognitions relating to the conformity assessment processes. As I understand the agreement, this will be a first for China. Of course, in that sense the whole agreement is a first for China—not in terms of all countries but in terms of developed countries. It is not quite correct to say that China has no other free-trade agreements, but this is certainly the first in respect of a developed country. The agreement relating to Part 3, “Amendment to Radiocommunications Act 1989” is indeed a path-breaking effort by China in its first attempt to do this with a small but sophisticated country. We should be very pleased that this agreement is being taken forward.

Dr WAYNE MAPP (National—North Shore) Link to this

I will just develop the point that was being made by my colleague Mr Tim Groser, who of course brings an enormous level of experience to international trade negotiations. One issue that has come through in amendments to Part 3 has arisen because there was some fear by submitters that through this agreement we would essentially be allowing the importation of dangerous electrical goods from China into New Zealand. It seemed to me at the time that those people were misunderstanding the role of international trade.

I ask the Committee—and I put this to submitters—how successful China would be if it established a reputation as an exporter of dangerous electrical goods to other countries. It is in China’s interests to demonstrate that it is an exporter of high-quality goods, and, by and large, it has been successful in that. We have only to go to any electrical goods store in New Zealand to find a wide range of Chinese-manufactured electrical goods, such as television sets, radios, DVD players, and so forth. In fact, China is already one of the world’s largest—if not the largest—manufacturer of television sets. Those sets are mostly not for local consumption; they are mostly for export. A significant number of Apple iPods are manufactured and assembled in China. The truth is that global companies are increasingly using China as a manufacturing base. Quite clearly, high electrical standards are required.

In this instance we are talking about a global trading nation that produces goods of a standard that is safe for New Zealand. I am not suggesting there have been no problems at all—in particular, there have been problems in relation to lead paint in toys. But those things are still covered by our safety regulations. Just because we have a free-trade agreement, that does not mean we will completely abandon all standards around phytosanitary rules, product safety rules, and so forth. Countries still have to comply with those rules, but this is a particular recognition in relation to electrical goods.

I know that my colleague Mr Groser very, very carefully discussed the nature of the agreement with members of the Government and former colleagues within the ministry. He made a formal recommendation well before the agreement was signed that that part of the agreement was satisfactory for the protection of the consumers of New Zealand. So what we are doing here today is passing that mutual recognition into legislation. I am suggesting, and, indeed, saying, to New Zealanders and to members of the Committee—particularly to those parties that are opposed—that this is not a reason to vote against the agreement. To be fair, I have not actually heard New Zealand First oppose the agreement on this particular point. It has opposed the agreement on other points but not on this point. The Greens have raised the issue from time to time, and Mr Locke raised it in Foreign Affairs, Defence and Trade Committee. I will certainly be anticipating their future contributions.

It is a curious thing that this debate has been going for approximately 2 hours and virtually all the contributions have been made by National members. We think that this is an important agreement. We understand that there will be a third reading tomorrow, and we wish to facilitate that process—we want this agreement to pass into law. But I must say I am surprised that parties that are opposed to the agreement have not been taking calls. Surely the people’s Chamber is where parties might actually set out their arguments as to why the agreement is not beneficial for New Zealand. I have to ask those three parties whether they are a little bit embarrassed about not supporting this agreement. It is widely supported.

The CHAIRPERSON (Hon Marian Hobbs) Link to this

Just before John Hayes takes the floor, I wonder whether we could really concentrate on what Part 3 actually says. I ask the speakers to read the part. It is actually about New Zealand conformance, not Chinese conformance.

JOHN HAYES (National—Wairarapa) Link to this

Thank you very much Madam Chair, but I would draw to your attention that there is a mirror-image process going on in the Chinese system so that the two sides of the telescope actually connect in the middle. It is, of course, a minor point. I will address the question that you put to the Chamber, which is the question of Part 3. I would particularly like my colleagues in the New Zealand First Party, the Māori Party, and the Green Party who oppose this bill to look at this document: New Zealand - China Free Trade Agreement (And Associated Instruments): National Interest Analysis. I doubt that anyone in this House, with the exception of those on the select committee, will have taken the time to go through that document and to work out what it is talking about. I would particularly like to draw Mr Brown’s attention to page 15 and paragraph 3.1.4 of that document, which talks about the need to make sure that our technical regulations in New Zealand—that is, that the electricity supply will be 240 volts and so many cycles, and have so much insulation—do not constitute a significant barrier to trade in a similar way to tariffs.

Without formal arrangements it is difficult to engage with other countries at that technical level, which is why this bill includes Part 3. What we are trying to say here is that our technical experts in China and in New Zealand need to have a mechanism for meeting together to discuss issues between them. In my electorate, where people have recently invented a machine for monitoring milk production through the use of electronic eartags so that, for example, one can predict mastitis before it becomes a clinical problem, one needs to get people on both sides of this trade agreement having common rules and understanding that this equipment satisfies rules in China. If the Chinese people feel they do not, then one needs a mechanism for dealing with the debate. Because of that we have to make amendments, as required here in Part 3, to the Electricity Act 1992 and the Radiocommunications Act 1989.

This is the Radiocommunications Act part of the arrangement, and it is to create regulation making powers to enable legal action to be taken against people who do not fulfil the requirements of international obligations while purporting to do so, and to provide for the seizure, sealing, or impounding of products in cases of non-compliance with the requirement of the two Acts, including in relation to the Environmental Risk Management Authority. This is done in part by Order in Council, and also by the Radiocommunications Act 1989. It will enable legal action to be taken against people who break the rules. That is the function of this legislation that we are debating now. It is in the New Zealand communities’ interests to do this. [Interruption] I realise that Mr Brown does not have any constituents, at least in an electorate sense, but I can assure him that if he was an electorate MP like me, and if he talked to people and represented their views, he would know that Part 3 is a significant benefit to them. I urge New Zealand First members to really think about what they are doing here and to support this element of the bill even if they do not support the whole concept. Opposing this is actually working against the interests of every New Zealander. That is why, I say to Mr Brown, 80,000 people have left the country in the last 12 months—45,000 of them to Australia.

CHRIS TREMAIN (National—Napier) Link to this

I rise to take a brief call on Part 4, “Amendments to Fair Trading Act 1986”. I particularly want to discuss two clauses in this part: clause 21, which deals with the purpose of this part, and clause 23, which deals with a new section to be inserted. Members may wonder why I am taking a call on this particular part, given that it concerns quite a tight piece of the Act. Part 4 deals with cooperation in the field of conformity assessment in relation to electrical and electronic equipment and components.

Once again, members may wonder why I am taking a call on that particular part. It so happens that I have two companies in my electorate—two somewhat successful businesses. One goes by the name of Vectek Electronics and the other goes by the name of Future Products Group Ltd. Both these companies are involved in the manufacture and export of electronic products. Both companies will be involved in manufacturing and exporting these products to China, and both will be affected by those particular clauses in terms of ensuring that they conform with the requirements relating to electrical and electronic equipment.

I will start with Vectek Electronics, which is an amazing business—a phoenix out of the ashes of PDL Electronics from Napier. PDL Electronics was led by a gentleman by the name of Keith Valentine, who has been quite a visionary in Napier and in New Zealand circles in terms of electronics manufacturing. He is an amazing gentleman who started the company pretty much from nothing. It is now a business that makes over $20 million from the export of electronic products throughout the globe—to America, to Korea, to Japan, and to China.

It is interesting that one might not think this business would be able to compete in those markets, but it produces power smoothing equipment in the electronics area. Power smoothing is used in factories in Korea and China that produce superconductors and microchips. Those factories require specific power smoothing because, as members may be aware, there is an abundance of power in China and that power is highly volatile. It requires significant smoothing to ensure that the power delivered into the factories is smooth and that the equipment used to manufacture microchips does not fall over all the time.

Vectek Electronics is an amazing business that will be affected by Part 4, particularly clauses 21 and 23. It will have to make sure that the power smoothers it manufactures in Napier and exports to China conform to these standards and make the grade. I believe that, as a result of the free-trade agreement, Vectek Electronics will be in a much stronger position to grow exports from New Zealand and to grow wealth, jobs, and income in Napier. It is an amazing business.

The second business is called Future Products Group Ltd. It was started in 1992 by a gentleman by the name of Rob Darroch. It started with two carpenters who were producing supermarket checkouts. This company is now an amazing business that has grown significantly. It currently has exports of around $25 to $30 million, and it has a vision of achieving exports to the value of $50 million over the next 5 years. It started with supermarket checkouts, but it has now moved into refrigeration units and the electronic equipment behind refrigeration units. It has done a lot of the McDonald’s supermarket franchises. In fact, it is now one of the four McDonald’s outfitters in the South Pacific, particularly for the McCafés.

The company has had an opportunity to produce up to 500 McCafés on the west coast of America, but within Napier and New Zealand it is unable to meet that demand. So it is now looking at joint manufacture in China of some of the refrigeration units, and at exporting some of the product to China in order to add to the manufacture and take up some of its export opportunities. As a company it will also have to deal with Part 4. It will have to make sure that it is conforming to the electrical and electronic equipment standards that are required for export under this free-trade agreement. I think this is a great opportunity for those two companies, and I thank you, Madam Chairperson, for the opportunity to speak.

TIM GROSER (National) Link to this

Essentially we are dealing with the same underlying issue. This part is enabling legislation to make changes to the Electricity Act 1992, in order to allow the concept that we have been discussing under Part 3 and Part 4, the mutual recognition agreement, to take place. So let us quickly rehearse the key point here. This is not about adopting China’s standards; this is based on New Zealand standards. But we are relying, in this particular defined area, on conformity assessments that the New Zealand standards in respect of imports from China have met the requirements of our own Electricity Act—and vice versa in respect of Chinese standards, which are often based on similar international standards. Therefore, it is taken as read that our exports are consistent with Chinese standards before they leave the shores.

That has a number of advantages for our exporters, and we heard two excellent examples of that from my colleague Mr Tremain. I am familiar with both of those companies. They are the sorts of knowledge-type companies that this country so desperately needs. Of course, we would like to see some of them step up in terms of scale. Frankly, in order to transform our country we need to have only about 20 Fisher and Paykel Healthcares, if you will—I could use another example—to utterly transform this country and get it back into the top league of developed countries. That will be done by small steps, including through this very important agreement to provide the best possible framework for the future export growth of those companies, which are based on the creativity of New Zealanders that all of us in this Chamber know exists up and down the country.

The second point I would like to make is that Part 5 is not just about the New Zealand regulations; it is also about reciprocity—the export of New Zealand. If we look at clause 28(2) and (3), we see specific reference to exports from New Zealand “pursuant to the Conformity Cooperation Agreement”. Clause 28(2)(b) adds some definition to that, as does clause 28(3). So we are talking about a reciprocal agreement of mutual benefit to both parties to the free-trade agreement.

China now seems to have acquired the title “the workshop of the world”. It is an intriguing title when one reflects on the fact that a little more than 200 years ago that title was given to the first country ever to make the transition from an agrarian to an industrial base, the United Kingdom—the workshop of the world, it was then known as. Now we have a new and giant contender. We will be relying on Chinese electronic goods for many purposes in our own country over the next 25 years, as a simple reflection of that fact.

I do hope that this agreement provides New Zealand consumers not only with greater assurances but with the right sort of framework to see cooperation of an overtly commercial nature develop, of the type Mr Tremain was indicating in respect of voltage regulators. The voltage regulators used in semiconductor factories are the most sophisticated types of regulators that exist in the world, given the fact that each semiconductor factory requires investment these days of between US$4 billion and US$6 billion. So voltage change is a fundamental issue for those companies, and it is great to see a New Zealand company has stepped up to the mark and is working with a giant electronic industry in East Asia, and particularly in China. I have no doubt that this agreement will help companies of that type.

I will make just a few observations about the underlying concept of mutual recognition, because I think it is a difficult concept to grasp. It is really an alternative to business harmonisation policy in trade agreements. Once we have dealt with the first-tier issues of overt frontier protection, then we try to work out how to reduce barriers to trade by measures behind the frontier. This concept is of that type.

JOHN HAYES (National—Wairarapa) Link to this

I am now speaking on Part 5, “Amendments to Electricity Act 1992”. This is very similar to—it is almost a mirror of—Part 3, which deals with radiocommunications, but this part clearly influences issues around electrical machinery. The point of it is to create regulation-making powers to enable legal action to be taken against persons who do not fulfil the requirements of international obligations while purporting to do so, and to provide for the seizure, sealing, or impounding of products in cases of non-compliance with the requirements of the two Acts. This also operates through an Order in Council, and surely my colleagues in New Zealand First, United Future, the Green Party, and the Māori Party would understand that it is in the interest of New Zealand consumers of electrical products—

KEITH LOCKE (Green) Link to this

There was an article in the Independent just last week headed “Hidden hooks emerge in China FTA”, and I think the article does relate to Part 5. It is about standards—in this case, standards for electrical goods—and one chap by the name of Andrew Little, who is the national secretary of the Engineering, Printing and Manufacturing Union, is quoted here. I note that he is a member of the Labour Party and in some minds is pencilled in to be a future leader of that party. But he is rather concerned about some of these fish-hooks.

Andrew Little is worried, and he says his sector is worried, about the ability of employers and unions to verify and authenticate the qualifications of temporary Chinese workers. Instead of the Chinese industries being worried about New Zealand exports of electrical goods to China being in conformity with their standards, which this part is all about, they could say they will take over a New Zealand company, run it themselves, and import all the Chinese standards here. But, as Mr Little says, the quality of the work might not be up to our standards, if we cannot check properly the skills of the temporary workers who are to be allowed in under the free-trade agreement. There is a quota being allowed in, and who knows, really?

The standard of the skills can change in our regulations, but there is a clause in the treaty saying that if the skill standard in the New Zealand skilled migrant programme is raised for, say, electrical manufacturing workers, the old standard can continue to apply for up to 3 years to the quota of Chinese skilled workers who are to be allowed in.

TIM GROSER (National) Link to this

I will make just a few concluding remarks about Part 5 in terms of the underlying mutual recognition agreement concept, since it is a very difficult concept for people to get their heads around, as I was saying before. It is essentially an alternative to what used to be flavour of the month 20 years ago: business harmonisation. We discovered in our first real attempt to do this—with Australia in the context of CER—just how difficult it is to advance harmonised policies, because at the end of the day what we are really trying to do when we say “harmonise your policy” is to say “You adopt my policy or I will adopt yours.” In practice, there is massive resistance from both sides to adopting an entirely new policy. It is so much more sensible to go down the track of mutual recognition, which, in common language, would be to say that there are more ways to skin a cat than one, or that there are different ways—if I use the refrigerator example again—to wire a refrigerator so that it is safe for kids to open and get a glass of milk, or whatever it is they want. There are different ways of doing that to achieve the equivalent results. So it is about coming out of that whole concept of equivalence without trying to say there is only one particular wiring diagram we can use to achieve the effect.

I do not know intellectually what the origin of mutual recognition is but, in a practical political sense in the trading arena, we sort of learnt this from the Australians. In Australia I found to my surprise that the actual concept of mutual recognition of different Australian states’ standards is actually of relatively recent origin, and there are still many areas and services where mutual recognition is yet to be achieved, if I am not mistaken. I became familiar with it when I was the lead negotiator for New Zealand on the Singapore free-trade agreement, and we introduced into the Singaporean mindset the concept of mutual recognition agreement. It was, I have to say, a revolutionary concept for the Singaporeans, deeply sophisticated though they are in electronic and other matters, and generally as a country. We had to arrange to sell them the underlying idea that we are talking about in Part 5. We had to take New Zealand experts to Singapore to educate Singaporean regulators on what the underlying conceptual approach was. It took a bit of time to sell, but it was incorporated into the agreement.

I think it is an excellent advance now to have taken this into a far, far more important trade agreement, the China free-trade agreement. Essentially, it reduces compliance costs and facilitates trade, and it is very much my hope that the Chinese in particular will see the point in extending this into other areas. In every case there has to be a high degree of trust amongst the regulators; it does not work if there is distrust between regulators. The problem in this area is that regulators are often specific to sectors, so quite a lot of people-to-people exchanges are needed to make this work, and a lot of information flow is needed. But I think that potentially the economic returns long-term are very, very considerable.

I hope that the Chinese as well as our own Government will use this entire trade agreement, including its mutual recognition elements, in a proactive sense. I have no doubt that New Zealand will be seeking to do that. I strongly believe that from a Chinese perspective this agreement makes sense, frankly, only if the Chinese can use this as a template for their own internal purposes and their own negotiations with countries—countries, let us face it, that are rather more important to them than their 45th or 48th largest export market, or whatever New Zealand is—and I hope that we will come back into a future Parliament and see introduced into it similar legislation that builds on this agreement.

PETER BROWN (Deputy Leader—NZ First) Link to this

I was not going to take a call on this part, but after listening to the honourable member I must make a few points. First of all, the Singapore - New Zealand free-trade agreement is hugely advantageous to Singapore. Let us not kid ourselves. Singapore has done very, very well out of that agreement. The member sits there and quotes—

GERRY BROWNLEE (National—Ilam) Link to this

Of course I will follow the rules of debate. Madam Chair, you will appreciate that one of the rules of debate is that one gets to rebut at the start of one’s comments. So I will take a moment, with your indulgence, to rebut some of the extraordinary things said by Peter Brown.

First off, Mr Brown confirmed the xenophobic nature of New Zealand First. He then announced to the entire Parliament that New Zealand’s Minister of Foreign Affairs—New Zealand First’s party leader, the Rt Hon Winston Peters—is also a xenophobe. He is hanging around Singapore at the present time and trying to impress various foreign dignitaries, presumably touting his own CV so that he has something to do later in the year. But the extraordinary thing that came through from Mr Brown’s speech was the suggestion that the Chinese are being cunning here, and that they will swamp us with refrigerators and all sorts of electrical goods. So here is the deal: China, with 1 billion people, is looking to expand its market by doing a deal with a country with 4 million people in it. We are not even the size of a small suburb of Beijing, but apparently we will do wonders for the Chinese economy!

Well, I have some news for Mr Brown. Despite Winston Peters’ best efforts, New Zealand is still primarily an agrarian economy—we are great producers of agricultural products. One of the things that will surprise Mr Brown and New Zealand First is that a lot of the 1 billion people in China are hungry. They actually want to buy the proteins that we produce, they want to buy the milk solids that we produce, and they are very interested in the myriad of other products that we produce. They cannot get enough of them.

The CHAIRPERSON (Hon Marian Hobbs) Link to this

Before we begin the debate on these clauses I will read members Speaker’s ruling 106/2. “When debating the preliminary clauses at the end, members should have some latitude to summarise, and make concluding remarks about, the issues they have raised during the committee’s consideration of the bill.”

TIM GROSER (National) Link to this

In the discussion on Part 5, which we have just heard, Mr Brown said he had not heard one reason from National as to why we need a free-trade agreement with China. He then added—and I wrote it down—“Tell us what is in it for New Zealand.” I know that it was probably not intended as a serious question, and I am even more certain that it does not deserve a serious answer. Nevertheless, ignoring those simple facts, I will proceed in the assumption that there might just be a New Zealand First person listening to this debate who is still wondering what on earth the New Zealand First problem with this bill is. I will try to answer the question as if it were a serious point.

I think we have to start with an appreciation of the fundamental challenge facing New Zealand economically. The fundamental challenge is to raise real wages. The fundamental solution is to increase total factor productivity, and the fundamental best way to achieve that is to increase the export orientation of our economy. We know that New Zealand, far from being a small but great trading nation, is actually at the absolute bottom of the heap of the 15 small developed countries with a population of 10 million or less in terms of the ratio of trade to GDP. It is of fundamental, long-term importance, even to those 4 to 5 percent who vote for New Zealand First, that we change this over the next 20 years.

A variety of things must be done in this country if we are to address this underlying economic challenge, and one of the issues is to provide markets for New Zealand. Anyone with any actual appreciation, let alone any real-world experience, of the international trading situation facing New Zealand in the last 30 years is well aware that of all the developed countries in the world, large or small, this country—our country—has been more constrained by the lack of access to markets for the products we produce competitively than any country in the world. There are myriad studies to back up that judgment.

So against the background of 30 years of, frankly, bitter struggle by “New Zealand Inc.”, both the major political parties have been in charge of the country, and we have had Prime Ministers, trade Ministers, farming leaders, and all manner of New Zealanders—including people like Dr Walker, and myself, in my former job—trying to find a solution for access for New Zealand markets. Then what happens? A giant emerging economy, which is responsible for 24 percent of the population of the world, comes to New Zealand’s door and asks whether we would like, essentially, completely free access, in about a decade, for whatever we can produce. I am sorry, but if one’s answer to that is no, one would have to be a prime candidate for village idiot of the year. That is the underlying point of this agreement, and it related right back, through that logical train, to the need to ensure that the young people coming up in our country can make a future for themselves in this country. The right way to do this is to provide competitive opportunities. This is fundamentally important to New Zealand.

We have a situation where we know that the Chinese people are moving up in the income world. Thirty-four percent of Chinese people are nowadays in the $1 to $2-a-day bracket. This is miles ahead of the other giant developing country, India, which still has something like 70 percent of its population in the $1 to $2-a-day bracket. We know that China will manage its way through the super-fast growth problems, the inflationary issues, and the issue of churn in its employment markets. China will continue to grow at a stellar rate. It will need this country—this small country of which we are all so proud—to provide the high-quality foodstuffs that Mr Brownlee just referred to in the first response to this, frankly, very ill-conceived attempt by New Zealand First to provide a thin rationale for its position.

PETER BROWN (Deputy Leader—NZ First) Link to this

Boy, when Tim Groser gets his knickers in a twist, they sure get in a tangle. Let me say to the honourable member who has just resumed his seat that I have here an extract from Exporter magazine. This is what it states: “For some exporters, New Zealand’s free-trade agreement with China is a decisive triumph, laying a clear pipeline for future revenues. For other China old hands, the FTA’s future benefits remain illusory, considering the sheer cultural divide and business complexity China poses.” It goes on to state: “Anecdotal evidence suggests Kiwi business owners are not rushing to the middle kingdom. Those already steeped in the Chinese market say the FTA with China should not be seen as a panacea to Kiwi exporters’ aspirations to crack the Chinese market.” If we listened to Mr Groser we would think it was the be all and end all of everything. But I say to the honourable member, what is in it for the Chinese? That is what we should be examining. I can tell him that they see a huge advantage. But Mr Groser told us, when he was debating the tariff issue, that we are going to export more wine and the Chinese are going to drink our wine by the bucket load. Who is he kidding? The Chinese culture does not allow its people to get involved in wine.

KEITH LOCKE (Green) Link to this

Tim Groser, quite a bit earlier on, was particularly worried about using this trade agreement in some way to advance human rights concerns—that is, in relation to the Green position that it is very bad timing to be signing an agreement a couple of weeks out from the Olympic Games when there is such a huge campaign to try to use this period to improve the human rights of Chinese people by supporting those millions of Chinese who are struggling against the one-party State that rules over them for greater human rights.

The arguments used by Tim Groser were in contradiction to our foreign policy. One of his arguments was that there are human rights violations everywhere and that if we used trade to advance human rights concerns we would have to use it against all of those countries. We are selective in our foreign policy as to how we use whatever instrument, a carrot or a stick, to achieve a gain for human rights. In South Africa we used sanctions; in other countries we have used other ways. There is anything from sanctions to rewards. The Green position is not to put any additional sanctions on China. We support trade agreements with China. We support trade with China. What we are against is giving a preferential agreement—free entry of Chinese goods into our country—and signing this agreement right at this time, which is the very wrong time to do it. We can have the arguments about the goodness of the agreement as a whole, but the timing is completely wrong. The idea that we do not use instruments or rewards in foreign policy to achieve human rights gains is totally wrong.

There is the idea that economic development and the development of an educated middle class etc. is commonly accompanied by an improvement in human rights, and that has happened to some degree in China today. There have been some advances, but that does not always happen and it does not always happen if the world tolerates dictatorship. We saw it in Germany, which was the most advanced industrial country. That did not mean to say that it was advanced in human rights during the Hitler period. We see it today in the most advanced economy, the United States, where there has been a huge deterioration of human rights—for example, Guantánamo Bay, the complete abuse of proper trial procedures, high rates of execution, etc, which have been a very bad model for human rights in the world, and that is in the most developed economy. So there is more to it than just saying that industrial development will be good.

I think that the idea that trade is the answer to everything is wrong, too. Sure New Zealand has advanced through being a major trading nation, but it is not necessarily the best way forward to say that we will replace our manufacturing economy and we will let Chinese competition, through low wages, smash that, and that we will compensate by increased agricultural exports. That would end up with an economy that is not balanced and that is more at the whim of the international economy and international markets etc. That is not the future.

The ideology that trade is everything and the proportion of trade to GDP is everything is not the way forward for New Zealand, particularly as we approach peak oil. The costs of trade, in some respects, will increase and countries are looking to greater food sovereignty and such things, and rightly so, given the way the international market in food has led to huge problems in many countries. There are huge increases in price because the free-trading environment is often substituted for local food production, and that has led to much higher costs and devastation for millions of people worldwide. We see that in the big demonstrations and riots that are occurring in several countries. That is partly a result of the ideology that trade is everything and balanced economies are nothing. Thank you.