Tariff (New Zealand-Hong Kong, China Closer Economic Partnership Agreement) Amendment Bill

I move, That the Tariff (New Zealand-Hong Kong, China Closer Economic Partnership Agreement) Amendment Bill be now read a first time. At the appropriate time I intend to move that the Tariff (New Zealand-Hong Kong, China Closer Economic Partnership Agreement) Amendment Bill be considered by the Foreign Affairs, Defence and Trade Committee, that the committee report to the House on or before 29 July 2010, and that the committee have the authority to meet at any time when the House is sitting, except during oral questions, during any evening on a day on which there has been a sitting of the House, and on a Friday in a week in which there has been a sitting of the House, despite Standing Orders 187 and 190(1)(b) and (c). Reporting back by 29 July 2010 will enable New Zealand to remain on course to complete its domestic procedures for the purposes of the agreement’s entry into force on 1 October 2010. For this to occur, Hong Kong and New Zealand must each have given notice before 31 August 2010 that they have completed their domestic procedures.

The New Zealand - Hong Kong, China Closer Economic Partnership Agreement, or CEP as it is often called, is an important milestone for New Zealand and is the first free-trade agreement that Hong Kong has signed outside mainland China. Hong Kong is both an important business hub and a significant market in its own right. It is currently New Zealand’s ninth largest export destination. Merchandise trade between our two economies has been growing at an average of 7.5 percent per year for the last 5 years, and last year it was worth close to $1 billion. Hong Kong is also strategically important as a trading partner located at the heart of Asia, and is an important platform for New Zealand companies entering into mainland China.

New Zealand is the only country in the world to have trade agreements with both mainland China and Hong Kong. This is important, because it is clear that China will play an increasingly larger role in New Zealand’s trading future. In the first year following the entry into force of the China free-trade agreement, the increase in New Zealand’s exports to China was some NZ$1.1 billion, which is almost as much as our entire annual exports to Korea. China recently surpassed the United States to become New Zealand’s second-largest export market after Australia, as well as our second-largest overall trading partner. It is no coincidence that our exports to China grew last year at the same time as we were experiencing a dramatic expansion of trade with China.

A free-trade agreement with Hong Kong can be of particular use for businesses that want to take advantage of Hong Kong’s knowledge and experience of doing business with China, its relationships into the Chinese market, and as well its relatively familiar legal system. Hong Kong can also serve as an important base for other markets in north Asia and the wider region, as it is an important regional trading hub.

Let me outline some of the key elements of the New Zealand - Hong Kong, China Closer Economic Partnership. One is free trade in goods. One of the key outcomes of many of our free-trade agreement negotiations is the elimination of tariffs, which impose costs on our export goods. The tariff barriers that presently exist between Hong Kong and New Zealand are relatively low. The closer economic partnership locks in duty-free access for all New Zealand goods exported to Hong Kong, including the 14 percent of Hong Kong tariffs that are not currently bound at zero. New Zealand will phase out tariffs on goods imported from Hong Kong in a way that mirrors the phasing out already agreed on for goods from China.

We have agreed on rules of origin, which broadly mirror those in the China free-trade agreement. This, coupled with parallel tariff phasing, removes any incentive for Chinese manufacturers to try to circumvent the New Zealand - China free-trade agreement and seek preferential access to New Zealand under the closer economic partnership.

New Zealand’s service providers will benefit from having greater certainty of access into the Hong Kong services market, including in the areas of private education, business services, environmental services, and logistics. Subject to certain exceptions, New Zealand service exporters will also have their position in the Hong Kong market future-proofed through what is technically called a “most favoured nation clause”. This clause is important, because it will enable our services exporters to benefit from the same treatment that other countries negotiate with Hong Kong in the future.

New Zealand business people will have the benefit of the expeditious processing of applications for business visas. Short-term business visitors will be able to get a 90-day visa. Further, in a broad range of sectors senior managers and specialists employed by New Zealand companies based in Hong Kong will be able to stay for a year, which is extendable for up to 5 years.

New Zealand companies will be guaranteed ongoing access to New Zealand’s Government procurement contracts on a broadly equivalent footing with local suppliers. This will be the first free-trade agreement since the Trans-Pacific Strategic Economic Partnership Agreement with Singapore, Chile, and Brunei in which we have secured commitments in this area.

There are other measures to improve the business environment. Measures relating to customs procedures and cooperation, sanitary and phytosanitary measures, technical barriers to trade, intellectual property, competition, and e-commerce will help to reduce the barriers to doing business between New Zealand and Hong Kong at a practical level. Also, a consultation and disputes settlement mechanism is included in this agreement.

Alongside the closer economic partnership, New Zealand and Hong Kong have entered into a memorandum of understanding on labour cooperation and an environmental cooperation agreement.

There is also a commitment to negotiate new investment rules. Alongside the closer economic partnership, New Zealand and Hong Kong have also agreed to negotiate an investment protocol within 2 years of entry into force of the closer economic partnership. This will update the investment provisions contained in the existing bilateral agreement for the promotion and protection of investments, which dates from 1995. Although it is envisaged that the investment protocol will provide for strengthened disciplines and protections for investors, there is no intention that the protocol would alter the categories of investment, which are subject to screening under the Overseas Investment Act.

In summary, this closer economic partnership is an important achievement for both economies. For New Zealand it establishes a clear, certain, and effective framework within which New Zealand companies can compete in a dynamic and rewarding market. It is important to note that it also complements our ground-breaking free-trade agreement with China. Together this provides us with an unparalleled opportunity to increase our exports to a region that will continue to be of central importance to our economy over the decades ahead. The bill will amend the Tariff of New Zealand by inserting: “Hong Kong, China” in the list of preferential countries in note 3 of the Tariff. This is the only statutory amendment required to give effect to the closer economic partnership. Following this amendment, certain amendments by regulation will also be required to enable the application of preferential tariff rates under the closer economic partnership. I commend this bill to the House.

I rise to speak to the first reading of the Tariff (New Zealand-Hong Kong, China Closer Economic Partnership Agreement) Amendment Bill. Listening to the Acting Minister of Trade give the introductory speech one could have been forgiven for nodding off, but I have to say that this initiative is really interesting and quite exciting. I have a degree of excitement about this initiative that clearly the Minister does not share. However, I recognise that it was probably not his own speech, as he was filling in for Minister Groser, who is, even at this moment, treading the boards overseas on behalf of New Zealand’s interests, most particularly in Russia. That is another innovation that will be of particular interest to New Zealand exporters.

Getting back to the matter in hand, which is the New Zealand - Hong Kong, China Closer Economic Partnership Agreement, this is an interesting agreement we have reached with Hong Kong. The origins of this agreement go back quite some way. In fact, they go back to 2001, when this matter was first mooted by Jim Sutton, who was the Minister for Trade Negotiations at the time. New Zealand and Hong Kong became bogged down in discussions around rules of origin and problems with labelling rules. The rules of origin of goods tended to bring the negotiations to a shuddering halt. In 2002 the talks were suspended, but they were revitalised under Phil Goff as Minister of Trade, and pursued by the current Minister, Tim Groser. So as always with these agreements, they are not represented simply at the moment in time when the legislation that is required to enact them is introduced into the House; in fact, this agreement has an almost 10-year pedigree. But it is worth traversing some of the things that will be of benefit to New Zealand.

I will also talk about some of the things that sometimes people raise as disadvantages to New Zealand when we strike these free-trade agreements, which is essentially what this is, albeit it is called a closer economic partnership agreement. First of all, as the Minister said, Hong Kong is our ninth largest export market. Just as important, it is our eighth largest source of foreign direct investment. That is significant. In these negotiations we went looking for a high-quality outcome that could be used as a model. An added attraction, of course, was the Chinese free-trade agreement, which is already in place. Hong Kong—with its own closer economic partnership with China, in fact—could see that it was a good idea to align the trading arrangements between it and New Zealand because of our free-trade agreement with China. So this agreement broadly mirrors the Chinese free-trade agreement.

I will speak briefly about some of the advantages and, if I have time, some of the disadvantages, but I can pursue those in the minutes of my speech that remain after the debate has been interrupted and resumed on a later day, I imagine. A number of things are worth noting. People who are watching may be interested to know just what New Zealand exports to Hong Kong. Particularly, we export food and beverages, some hides, paper and wood products, and—this will be of interest to one or two people in this House—race horses. Also it is an important, quite mature source market for high-end tourists and for students, both secondary and tertiary. More specifically, in regard to trade and economic links, New Zealand focuses on encouraging the greater take-up of New Zealand goods and services both in Hong Kong and China, including through partnering with New Zealand enterprises into China, increasing the current levels of investment into New Zealand, and encouraging Hong Kong people to see New Zealand as a good place for students to study—whether at secondary, tertiary, or vocational levels—or undertake research. We have also emphasised quite recently the need to encourage research collaboration between New Zealand and Hong Kong research institutions in areas such as nanotechnology, medical research, and renewable energy. This agreement also promotes the bilateral working holiday scheme, and promotes New Zealand as a distinct and attractive tourist destination.

It is interesting to note that when the free-trade agreement was signed in Hong Kong, the South China Morning Post—a newspaper known to anybody who has ever flown a route through Asia from New Zealand—made the point in the first paragraph, where one assumes things are put that might be of greatest interest to the people of Hong Kong, that “Hong Kong and New Zealand have ratified a free-trade agreement that will allow people travelling on business between the two places to stay for up to three months.” It also highlights the fact that New Zealand opens its doors to more “work as you go” Hong Kong holidaymakers. Clearly the Hong Kong media immediately decided two points of this agreement were of significance. The fact that business people travelling between the two places can stay for up to 3 months on a business visa is important. Establishing relationships, building networks, and moving from Hong Kong into China takes more than a week. It takes more than one trip. So facilitating longer stays without bureaucratic trammelling is an important consideration in this closer economic partnership. Business New Zealand business people, who accompanied the Minister on the visit to Hong Kong at the time of the signing of this free-trade agreement, were very pleased to see that. It made their life easier and facilitated the establishment of businesses, and therefore the trade relationship, between Hong Kong and New Zealand.

Debate interrupted.

The House adjourned at 10 p.m.