New Zealand-China Free Trade Agreement Bill

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.

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: That’s right.

I know that parliamentary colleagues in the Green Party are making a particular thing of this.

My colleague Wayne Mapp mentioned stickers. Well, there are stickers on apples. I do not know how one shows a certificate of origin on an egg, although I have seen stamps on eggs; it can be done. But a certificate of origin is far more than just a stamp of origin. It carries the essence of the country of production with it. In the case of New Zealand, it is a brand in itself, if one has a certificate of origin. It is a protection for the producer, it is a protection for the consumer of the goods, and it is a protection for the carriers who transact the export of those goods.

In reading Part 2, which amends the Customs and Excise Act 1996, and having been involved in export for a while, I wondered why we had to have a particular certificate of origin. The answer, I guess, is in new section 64A(3), to be inserted by clause 14. It specifies: “Goods originate in New Zealand if, for the purposes of the China FTA, the goods satisfy the requirements of the rules of origin prescribed for the China FTA.” If I have it wrong, I would be grateful if the Minister would take a call, and explain. I gather there are particular requirements that the certificate of origin meets.

My colleague Tim Groser, who has phenomenal experience of this issue, talked about anti-dumping protection. I would agree with him that rather than go into the swampland of discussing that in detail, I think there is a case for accepting that there is a measure of protection through the certificate of origin purpose. I think what we are seeing here is a further example of free trade being free but also being protected in the best sense, because exporting and importing is not just a matter of transacting.

I used to explain to the troops, as we called them as we went about our work, that what the customer wants is not really lots of advertising and negotiation on price. What the customer—the end distributor—wants is the goods he ordered on the vessel he nominated at the agreed price, but overall, more than anything else, he wants the correct certification, because it is, in fact, the documents that are being exchanged. The goods follow along in good faith, as does the money, but the documents form the crucial part of any transaction of an export nature. We are blessed in this country with a Customs Service that has obligations to the country and to the international linkage with other customs services—which, of course, sometimes comes as a surprise to exporters.

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.

💬 John Hayes: I raise a point of order, Madam Chairperson. The debate we are hearing at the moment has nothing to do with Part 2.

Speaking to the point of order, Madam Chairperson, this part is all about this issue. Chris Auchinvole went on in his speech about certificates from the country of origin. My debate is that this should be extended and complemented by having consumers know that fact as well as the bureaucrats.

The CHAIRPERSON (Hon Marian Hobbs): I actually heard, and said to the Clerk beside me, that the member was taking the debate wider than the certificate of origin as it applies to this free-trade agreement, but he had begun with Part 2. I now ask the member to come back more closely to Part 2.

I will accept your judgment, Madam Chairperson. But members should recognise that in the Green Party’s view, one cannot separate the question of certificates of origin that are provided to the State machinery in another country from that of the certificates of origin—that is, stickers on the food or on the basket of food—that are available to the New Zealand people.

We could, if we wished, move an amendment to the effect that these certificates of origin be complemented with a requirement for them to be made available to the people of China perhaps, or be made available on Chinese goods being bought by the people of New Zealand, through having just that additional bit. I am sure the amendment would be supported by the Māori Party and New Zealand First. It does not need to be the whole certificate, but just a little label, stating perhaps the abbreviation COI—that is, certificate of origin—and the word “China”. It is not a very long word to put on a label: C-h-i-n-a. That could be done so that the procedure does not stop at the level of the State bureaucracy. I think that possibly over the dinner break we might be able to work out a little amendment to that effect, although it may be too difficult in that short time.

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.

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 Member: Is that possible?

Yes, that is absolutely possible, and I have seen it. I think the other parts of Part 2 are relevant—for example, new section 64B, inserted by clause 14, where we are establishing “Bodies authorised to issue New Zealand certificates of origin”. This is fundamentally important, because we need to guarantee to the buyers in other countries that proper process has been followed, and that New Zealand as a reliable trading partner needs to have these certification systems in place in a way that gives confidence to our overseas buyers. I think we fully support those arrangements.

I will come back to the point that our Green colleague was discussing, in terms of threats to products like garlic, which I think he was talking about. What is really important is that as we move forward with our trade, and advance arrangements with the Chinese community, increasingly we will have to put into our agricultural processes the systems that can identify the suppliers of products.

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.

Sitting suspended from 6 p.m. to 7.30 p.m.

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.