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

It is good to be able to support the Tariff (New Zealand-Hong Kong, China Closer Economic Partnership Agreement) Amendment Bill in the Committee stage, and I will do it fairly briefly. One of the things I draw the Committee’s attention to is the constant negativism and opposition of a misled Green Party, which has a minority view in the Foreign Affairs, Defence and Trade Committee’s report. I simply say to the Green Party that as a specific result of our free-trade agreement with China, New Zealand increased its exports to China by $860 million in the last 12 months. I ask members to think about the number of jobs that that is creating, but the Green Party would like us to shut that down. A new market of $860 million is roughly the equivalent of finding a new market like Indonesia, because our total exports to Indonesia are about $860 million. I say to this Parliament and to this country that when it comes time to tick the box for the party we want to vote for in the next election, we should remember that the Green Party would like to close this down and close job creation down. When the select committee considered that issue, we said it made no sense in our heads.

This is a very brief bill. I draw the Committee’s attention to two points. First, the bill includes a ratchet clause. This means that should there be any future trade unilateral trade liberalisation by Hong Kong in certain sectors, such as education, the Hong Kong Government will automatically be obliged to pass those benefits on to us. We believe that the most-favoured nation status and the ratchet clause will future-proof access for New Zealand for the service sector, particularly to the Hong Kong market.

Second, over the last few months voters in my Wairarapa electorate have felt considerable concern about people coming into this country and buying up land. Two of the Crafar farms are located near Norsewood, in my electorate. This agreement does not allow Hong Kong investors any exemption from the screening process and the regime set out in the Overseas Investment Act 2005. The Act requires overseas investors to apply to the Overseas Investment Office for consent to invest in New Zealand in respect of fishing quotas, sensitive land, or business assets over $100 million. However, I stress to the Committee that the screening threshold for Hong Kong is $20 million. It is well below the threshold of the $100 million that is applicable to other overseas investors. With those few words, I stress our total support for this bill. Thank you.

I find myself agreeing with the previous speaker, John Hayes, because free trade is one of those things where one has to be in the game if one wants to be part of the new world era. This day and age of globalisation is very real, and it will affect New Zealand. It can be seen either as an opportunity or a threat. If we see it as an opportunity and grab it with both hands, as this bill has done, then there is a real chance for New Zealand to go out to the world and be a world leader. In this day and age, not just companies but countries are striving for competitive advantage. We suffer from the tyranny of distance; it is difficult for us to go out there and find our way in new markets. We need these sorts of free-trade agreements if we are to achieve sustainable economic growth.

This bill is most important, as are all free-trade agreements that come before the House. It is a short bill, as the previous speaker alluded to, although there is a national interest analysis that runs to about 58 pages.

I must admit that I took slight offence when the speaker from the Green Party, Russel Norman, stood up and said that Labour passes any legislation that has “free-trade agreement” on the front of it, without understanding national interest analyses. We understand national interest analyses. Labour members sit on the Foreign Affairs, Defence and Trade Committee, which deliberates on these sorts of bills. Labour understands free-trade agreements. We understand the ramifications, the risks, and the benefits. This bill is important, and we very much support it because it gives our exporters an opportunity to get into markets that were closed to us or were limited due to unrestricted tariff barriers. We already know that Hong Kong offers duty-free imports for all countries, but this closer economic partnership will ensure that New Zealand’s existing duty-free access is locked in for our exporters, which will give our exporters an added certainty that competitors, other than Mainland China, do not enjoy.

This bill is important for the future of New Zealand trade. We are an exporting nation. Exporting is the only way that we will grow our economy. We have a small population of about 4.5 million, and if we want to rise up the OECD rankings, which seem to be most important to some politicians, then we really need to engage our export markets.

We have the most favoured nation treatment, which means that New Zealand service exporters have also secured strong future-proofing of our position in the Hong Kong market through the most favoured nation treatment and a ratchet clause, which actually is not that bad. Most favoured nation treatment means that New Zealand exporters will automatically benefit from any preferential treatment that Hong Kong provides to future free-trade agreement partners, subject to certain reservations and exceptions. The ratchet clause means that any future unilateral liberalisation undertaken by Hong Kong in certain sectors will be bound and committed to New Zealand.

This bill is about New Zealand going out into the world and developing agreements and relationships with countries that it otherwise would not have. As my colleague Pete Hodgson mentioned, this bill takes the lead. We can wait until all those multinational World Trade Organization agreements come into place, but if we wait for them, we could be waiting for a long time. This bill is a proactive response to what is happening around us at this point in time.

We have a long tariff phase-out. New Zealand will be using the same tariff reduction schedule as the New Zealand - China free-trade agreement for imported products from Hong Kong. In order to help mitigate the potential for any negative adjustment effects associated with the phase-out of these tariffs, the longest tariff phase-out periods apply to industry sectors in New Zealand that are particularly sensitive to imports from Hong Kong. So when a Green member stands and berates Labour for not understanding this free-trade agreement, I take exception.

As I mentioned in my second reading speech, I do not think the National Government is taking this issue seriously enough. It is cutting the budget to New Zealand Trade and Enterprise initiatives that the previous Labour Government ramped up. I do not think that New Zealand is resourced enough to take full advantage of the effects of this, and other, free-trade agreements or closer economic partnerships, or whatever you want to call them, that are before the House. If we are to really take advantage of them, the Government needs to fund them. The Government needs to understand that this is the future of the New Zealand economy. Thank you.

The previous speakers have talked essentially about the upside of the Tariff (New Zealand-Hong Kong, China Closer Economic Partnership Agreement) Amendment Bill—that is, the expansion of particular dairy products in Hong Kong and, related to that, in China. They talked very little about the downside in terms of the effect on New Zealand manufacturing, which continues to be undermined by cheaper products from China. It is not a level playing field for New Zealand manufacturers.

I will address the question that John Hayes raised. His concern—and I am glad that he has the concern—was about the sale of the Crafar farms and perhaps other dairy farms to overseas interests. In this case we are talking about Chinese or Hong Kong interests. We are left with the problem in the dairy sector of perhaps expanding the exports to China and Hong Kong but perhaps losing the land to foreign ownership—to China or Hong Kong—that those dairy products come from. Let us look at the investment provisions—and they have been described by many speakers—the $100 million limit and, under this agreement, the $20 million limit. Unless a dairy farm is sold for more than $100 million it just goes through the system, and a high proportion of our land can be onsold to overseas interests. We end up with our dairy farmers being tenant farmers on land owned by Chinese, Hong Kong, or other overseas owners.

The Government and Labour should take note of the campaign started up by some very prominent Auckland business people to try to deal with this and to essentially say that we should not sell our farmland in this way. Other countries do not do it. China does not do it; it allows only leasehold. I think the very fact that quite prominent members of the business community are promoting this campaign and are getting some momentum should wake up both Labour and National. One of the problems is how, under the ratchet clauses in this agreement, as was explained by Russel Norman, we can legally get the result that these Auckland business people want under what we have committed to in terms of the two agreements and other free-trade and investment agreements. It is very hard to legislate without violating what is written in the free-trade agreements. That is a quandary that I wish Labour and National would address.

The very few clauses that exist in the Tariff (New Zealand-Hong Kong, China Closer Economic Partnership Agreement) Amendment Bill belie the expansiveness and the potential of this closer economic partnership.

I listened with great care to the Green Party members’ speeches about this. There was an earlier occasion, when we were debating the Malaysian free-trade agreement, I think, when there was very useful dialogue amongst the parties in the House about what potential pitfalls there might be and how the whole trade process might be improved. It seems to me that the Green Party contributions have misfired in respect of the New Zealand - Hong Kong, China Closer Economic Partnership. When I look at the national interest analysis, particularly the bits that relate to the clauses on investment, I find that the only disadvantage that is noted about the clause relating to investment and the exchange of letters on investment is that, at the moment, there will be no investment chapter in the closer economic partnership because that issue is being resolved by an exchange of letters over a 2-year period. So within 2 years of the entry into force of the closer economic partnership a comprehensive investment protocol will be agreed by an exchange of letters, and added to this closer economic partnership. What remains in place is the current New Zealand - Hong Kong Agreement for the Promotion and Protection of Investments. That investment protocol does exist. It provides some minimum protections for investors, including national treatment, fair and equitable treatment, and also some disciplines on expropriation. I think the Green Party’s objections to the clauses on investment are somewhat overstated.

Labour welcomes this bill and the closer economic partnership because they develop what is already a very close relationship with Hong Kong, and they give us and our businesses the opportunity to maximise not only opportunities within Hong Kong but opportunities in China as well. As I alluded to earlier, this very short amendment bill is deceptive in its brevity because it encompasses an extraordinary range of things, particularly services that we will be able to trade in, and benefit from, as we go forward with this closer economic partnership.

It is the services component of this legislation that I celebrate the most, because I think it is the thing that will have the most vitality for New Zealand businesses. But I would ask that New Zealand businesses, in their efforts to maximise the opportunities that this closer economic partnership provides, are not hampered by a lack of resources being appropriated by this Government to allow, encourage, and facilitate businesses to take advantage of business opportunities in Hong Kong. It is one thing to have a closer economic partnership in place and all the tariff reductions in place, such as they are—and all gone by 2016. It is all very well to have greater trade in services. But if the Government is not prepared to assist businesses to maximise those opportunities, then this bill is hardly worth the paper it is written on. There are wonderful opportunities, but not all of our services and our manufacturers are geared up to take advantage of those opportunities. Thank you.

I will explore a bit further the opportunities that will arise for New Zealand, and particularly the agricultural sector, as an outcome of the New Zealand - Hong Kong, China Closer Economic Partnership Agreement. I note the stress that New Zealand sheep and beef farmers have been under for a number of years. Although this agreement provides an opportunity for that sector, I believe that it is up to companies such as Silver Fern Farms and the Alliance Group to make sure that they maximise the opportunities and the returns for their shareholding farmers. Maybe that goes a little bit beyond having market access to Hong Kong and China; maybe it goes as far as branding New Zealand sheepmeat and beef, which are highly regarded in that market. Making sure that they are fully signed up for things like—

The CHAIRPERSON (Eric Roy): I am sorry to interrupt the member; it is time for dinner.

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

I will just finish off, because I was mid-sentence. If I recall, 1½ hours ago I was talking about the opportunities and the challenges for the New Zealand primary production sector, and I was talking in terms of the sheep and beef industry capturing the value of their product. It is not good enough merely to grow it and ship it; it is about capturing the value. There are a number of Government initiatives, and one of them is National Animal Identification and Tracing, or NATE, which tags an animal from pasture to market, which is becoming increasingly valued in overseas markets. It is opportunities like that that the agricultural industry would do well to buy into in order to maximise the opportunities presented by things such as this free-trade agreement. Having finished that train of thought, I will leave it at that. Thank you.

I rise to take a call in respect of the Committee stage of the Tariff (New Zealand-Hong Kong, China Closer Economic Partnership Agreement) Amendment Bill. As prior speakers have said, Labour supports this bill. Of course Hong Kong is increasingly integrated into the China, Hong Kong having been returned as a colony from the British Government to China in—someone else can help me here, when did Hong Kong go back to China?

💬 Hon Dr Jonathan Coleman: 1997.

It was 1997, so in the last 13 years we have seen the relationship between Hong Kong and China become stronger, and, given the importance of China to the trading relationship with New Zealand, things that improve the gateway that Hong Kong provides into China for our goods and services are also in the interests of the New Zealand economy. The closer economic partnership agreement that we have here is another example of bilateral deals that are in the interests of New Zealand, notwithstanding the fact that New Zealand believes in multilateral agreements under the framework of the World Trade Organization (WTO) as perhaps being the more ambitious and desirable outcome of international trade talks. But, given that the Doha round of the WTO seems to have stalled, or at least is at serious risk of stalling, the importance of bilateral agreements heightens as a replacement for multilateral agreements. So although multilateral agreements would be better, bilateral agreements have to do if the world cannot come to some agreement under the WTO talks.

In terms of the benefits to New Zealand, it is worthwhile that the $4 million of tariffs currently paid by New Zealanders exporting goods to Hong Kong can be avoided through this agreement, but I am advised by my colleague Maryan Street that perhaps the greater potential lies in relation to service industries. Service industries providing services through Hong Kong stand to benefit more from the liberalisation of rules that apply to their conduct when trading in Hong Kong. The benefit of that is probably greater than that that accrues from the reduction in tariffs.

I know that in terms of some of the more populous provinces of China adjacent to Hong Kong, Hong Kong is indeed the point of entry into a lot of trade with China nearby. Increasing integration of Hong Kong and China in their commercial affairs means that if we are to have closer economic relations with China—truly one of the world’s superpowers now—facilitating that through the linkages we have through Hong Kong also seems to be a very good idea. It is already on record that the most significant free-trade agreement that New Zealand has entered into in decades is the free-trade agreement with China, which was negotiated by Phil Goff when he was the relevant Minister under the previous Labour Government. The statistics in respect of the outcome of the Chinese free-trade agreement show what the economic potential can be for a country like New Zealand to improve our economy with the free-trade agreement. Trade with China has boomed and the profitability of that trade has increased as a consequence of the reductions in tariffs that New Zealand exporters to China have benefited from as a consequence of the free-trade agreement with China. The Hong Kong agreement will bring similar benefit but will be of a scale that is far, far smaller, given the relative size of the Hong Kong economy compared with the Chinese economy.

None the less, Hong Kong is not a small destination for goods; it is our 10th-largest export market, worth $783 million in the 2009-10 year. It is the world’s second-largest service economy and acts as a hub for the provision of services in the region adjacent to Hong Kong, as well as Hong Kong itself. If we look at that part of the world as a tapestry of areas where we have different sorts of trading relationships, we will see that there are various countries in the Asian region where we have free-trade agreements. There are other countries where we have more restrictive trade arrangements.

There are two areas of the closer economic partnership with Hong Kong that I am particularly interested in exploring in the Committee stage of the Tariff (New Zealand-Hong Kong, China Closer Economic Partnership Agreement) Amendment Bill. They are the labour memorandum of understanding and the environment cooperation agreement, which are outlined in the national interest analysis that accompanies this closer economic partnership. In fact, the national interest analysis effectively does the job of a regulatory impact statement, so there is no regulatory impact statement on this legislation. This is one of the few occasions when we forgive the Government for not attaching a regulatory impact statement to one of its pieces of legislation. The reason is that the purpose of a regulatory impact statement has been covered in the national interest analysis.

The first point I want to make about the labour memorandum of understanding with Hong Kong is that it commits New Zealand to cooperating on labour issues, including participating in a cooperation programme, and to holding meetings on a regular basis with senior Hong Kong officials on the area of labour and also the environment. The labour memorandum of understanding contains generally understood or recognised core trade and labour principles, and is consistent with the policy framework for integrating labour into free-trade agreements. These principles include explicit recognition by both Hong Kong and New Zealand that labour laws, regulations, policies, and practices should not be used for trade protectionist purposes, nor should they be weakened or reduced in order to secure trade advantage. In other words, a country cannot deliberately beat down its labour costs in order to undercut goods that are being imported or exported. So there can be no contrived trade advantage by the repression of labour standards.

The specific reciprocal obligations for New Zealand under the memorandum of understanding on cooperation and related matters are, first, to maintain close dialogue with the stakeholders in the formulation of labour policies and practices. The second is to promote public awareness of labour laws and regulations that apply domestically. The third is to cooperate with Hong Kong on labour matters of mutual interest and benefit. The fourth is to designate a national contact point for labour matters to facilitate communication between the parties and to establish the cooperation programme that I alluded to earlier. The fifth one is to seek to provide funding to support mutually agreed cooperative activities, and the sixth is to meet within the first year of the labour memorandum of understanding’s operation, and thereafter as mutually decided by the parties. The final obligation is to consult the other party in the event of an issue arising over the memorandum of understanding’s interpretation or application.

So it is quite an active memorandum of understanding. It is not simply about having a talkfest; it is about making sure that there is a programme of meetings, that these meetings are held regularly, and that there is, in effect, a dispute resolution process in terms of differences in the way in which each party interprets or applies the memorandum of understanding on labour issues. Any differences or issues between the two parties, Hong Kong and New Zealand, should be settled by mutual consultation and negotiation. The memorandum of understanding does not allow for any differences to be referred to any third party or international tribunal. So we have here a concrete example of an agreement being examined on a programmed basis to confirm that labour practices are not being used for protectionism, or to undermine or confer any trade advantage on either party. So there is a dispute resolution process, which I have alluded to already.

That this closer economic partnership with Hong Kong and the free-trade agreement with China have labour and environment clauses built into them is an advance. The Committee will recall that the free-trade agreement with Malaysia that was recently debated in the House represented the very first time that Malaysia had had a labour clause inside a free-trade agreement, which is an improvement.

The second point is the environment cooperation agreement. The environment cooperation agreement between Hong Kong and New Zealand is consistent with the policy framework of integrating environment objectives into free-trade agreements, and includes the core principles that establish a foundation for the bilateral relationship. These include explicit recognition by both parties that environmental laws, regulations, policies, and practices should not be used for trade protectionist purposes, nor should they be weakened or reduced in order to secure a trade advantage. This takes on very significant meaning when one applies it to such things as the fishing industry. It can be used to ensure that there is no cutting of corners within practices in the fishing industry in order to undercut a trade advantage or to secure an extra trade advantage. Again, there are some specific reciprocal obligations for New Zealand under the environment cooperation agreement, such as cooperating with Hong Kong on mutually determined environmental issues of common interest, providing a list of areas of New Zealand’s interest and expertise, encouraging and facilitating information and cooperation activities between relevant experts, which is significant, and, again, designating a national contact point so that there can be free-flowing conversation between the two parties, and the ability for the parties to meet to establish, oversee, and evaluate cooperation activities.

There are some other points in the environment cooperation agreement. I think it is a suitable addition to the closer economic partnership with Hong Kong. I look forward to such agreements becoming standard practice—and only being strengthened—in our trade relationships and our trade agreements with other nations as we proceed. Thank you.

I rise to speak in the Committee stage of the Tariff (New Zealand-Hong Kong, China Closer Economic Partnership Agreement) Amendment Bill, which deals with the Hong Kong preferential trade agreement. What is interesting about this deal is that aside from the purely voluntary environmental and labour side agreements, which are not binding, there has been much talk in this discussion about the tremendous advantage that New Zealand has received as a result of the free-trade agreement between New Zealand and China. It is used as a kind of model, in some ways, to justify this. It is a very common and convenient rhetoric, but it is worth looking at the details of how the trade relationships between China and New Zealand have changed after the New Zealand - China free-trade agreement.

If we look at the detail and try to use this as an argument for all the different preferential trade deals the Government is signing, including the one before us, we see that the big increase in New Zealand exports has been in dairy produce and in wood, and articles of wood. There is a very simple reason for that. What China really wants from New Zealand are these basic commodities: dairy produce and wood. China wants wood for its booming commodity sector. As Tim Groser described it, there is a giant sucking sound from China because China is sucking in completely unprocessed wood from New Zealand. It is a very cheap commodity. It had nothing to do with the New Zealand - China free-trade agreement whatsoever. The reason why we are sending a lot of wood to China is China wants wood, not because we have some piece of paper that some people happened to have signed and think is significant.

The second big increase has been in dairy produce. The reason that there has been a big increase in dairy produce is the San Lu disaster with the contaminated milk, which was a catastrophe for many millions of Chinese parents and families. As a result, they wanted clean, green produce. The place they went to get clean, green dairy produce was New Zealand. They perceived New Zealand’s food products to be environmentally sound, which in turn means they are safe for their children.

So the two great increases in exports from New Zealand to China have absolutely nothing whatsoever to do with the New Zealand - China free-trade agreement. Even though it is used constantly by those who support an ideological position in favour of free trade, the truth is that the two big increases in commodity exports to China from New Zealand have nothing whatsoever to do with the free-trade agreement; it is simply used to justify the ideology of it. In understanding our relationship with China, we must not take a naive position. I think that a lot of the debate in this House is extremely naive in its attitude towards China.

The San Lu disaster is a very good example of that. We saw that the head of San Lu, Tian Wenhua, was both the chairwoman of San Lu and the head of San Lu’s Communist Party of China branch, and the reasons for that were intimately connected. The Communist Party of China is the puppet master that runs all of the large corporations in China, including San Lu. In the lead-up to the Olympics in Beijing, there was an edict from the propaganda department. It said that people could not discuss food safety issues in the lead-up to the Olympics. It was produced by the propaganda department. Each week in China the propaganda department of the Communist Party of China sends out a list of topics that will not be discussed in the media that week, and one of the issues that were not allowed to be discussed in the weeks leading up to the Olympics was food safety issues. So Tian Wenhua, who was the chairwoman of San Lu—

💬 John Hayes: What’s this got to do with the bill?

I can tell Mr Hayes that it has everything to do with the bill. This is about the effectiveness of these free-trade agreements. I am trying to explain to the Committee that this particular free-trade agreement with Hong Kong, like the one with China, is not very effective. If we look at the increase in dairy exports to China, we see it had nothing to do with the free-trade agreement and everything to do with San Lu. We can only understand San Lu if we understand the way in which the Communist Party of China controlled the company. In the lead-up to the Olympics the Communist Party said “Do not discuss food safety issues.”, so the chairwoman of San Lu had a choice. She could either obey the Communist Party of China, which said “Do not discuss food safety issues in the lead-up to the Olympics”—

I was willing to listen to Dr Norman continue his speech, so I hope that he takes another call. It was not my intention to thieve the call from him.

In beginning my address I acknowledge that a lot of cooperation generally sits around trade matters within this House, and I think it is worth noting that for the wider public. When all the politicians from this House are out and about we consistently hear people asking why we do not agree more often on various issues. Trade negotiations are an area where we tend to see a certain level of cooperation for the benefit of New Zealand, ultimately, and I want to acknowledge that first up. However, I do also point out that even though this is an area in which we probably have some broad agreement cross-party, John Hayes can still find several areas where he would like to chip in with interjections and I am sure that I will not be safe from that, either, during my address.

I also acknowledge that this trade agreement is unlike, I believe, one of our last agreements, where we had a significant amount of debate and discussion within this place and in the media. That was in relation to New Zealand’s free-trade agreement with China. Obviously there are significant differences between that agreement and what we are looking at here. In particular, Hong Kong already has very liberal trading laws that offer duty-free imports for all countries. But the closer economic partnership we are discussing today still offers additional benefits for New Zealand. However, I will highlight a little later on those areas that were identified as being of some risk to us and acknowledge those areas.

It is also important to note that Hong Kong is our ninth-largest export destination—at least it was in 2009. I think we frequently tend to home in on large Asian export destinations for New Zealand, but it is important to acknowledge that there are particular industries that benefit from our arrangements with places like Hong Kong, despite it being much smaller in comparison with the Chinese market.

A significant amount of time goes into these negotiations. Although in this Chamber we might be presented with a relatively small bill at the end of the work, this particular trade agreement held its roots as far back as, I believe, Jim Sutton originally. That alone points out—

💬 John Hayes: Yes, he sat on it and did nothing.

—it did not take John Hayes long—the amount of work that goes into these agreements. Of course, Phil Goff, who has his stamp on a number of these agreements from when he was the trade Minister, put a lot of work into this agreement and I want to recognise that at this point.

Although we have already acknowledged the benefits of this particular closer economic partnership, it is important to note the challenges that such partnerships can pose for our own internal markets. This one is different in that it has been acknowledged up front that Hong Kong as a market is more heavily focused on services rather than on the cheap manufacture of goods, which has in the past been an area where we have seen our local manufacturers undercut. Very early on in the piece New Zealand acknowledged that in order to survive in an increasingly globalised world we were going to have to accept that that was going to happen and not only try to cushion that as much as possible but also identify those niche markets where we could continue to carve out a space for New Zealand as a value-added economy and one that can focus in on those areas where we have real strengths. I believe that research and development is emerging as one of those areas for this country. I would touch on the dairy industry, but perhaps I will wait for Dr Norman to continue his contribution on that area instead.

We must acknowledge that New Zealand manufacturers of footwear and textiles are probably the ones that will be facing the greatest risk from this closer economic partnership. Some of those manufacturers have already fallen on hard times during the recession. Some local members of Parliament would have seen the pressures that those companies are facing. Historically those pressures have been accumulating through various other trade agreements and I do not think we could say that any one of those agreements in particular triggered them, but they do have a cumulative effect on some of our manufacturers. [Interruption]

💬 Dr Russel Norman: I’m not rude like that member; I let people finish. I have manners.

And very soon I will give the member a nod when I am handing back the baton to the Greens. I have one final point that I want to draw further on, which was a point made by my colleague Maryan Street in relation to an aspect of this closer economic partnership. The partnership has an environment agreement, with shared objectives between New Zealand and Hong Kong that are aimed at improving the environment and enhancing the capacity and capability of each country’s Government agencies, research organisations, academic institutions, and businesses, in order to address trade and environment matters. I would like to hear a little more discussion within the Committee of what, in practical terms, that will mean for New Zealand, but as a starting point I think it is incredibly important to acknowledge that we need to negotiate and entrench in these agreements those areas of most value and worth to us not just in economic terms but in terms of our country’s ideology. Environmental issues are some of those, but also our labour laws and practices and our values in that area must be entrenched in these agreements.

That is why I am particularly pleased that the closer economic partnership contains a labour memorandum of understanding. It states that although labour laws should not be used for protectionist measures—obviously there are a number of reasons why that cannot be the case—they should also not be weakened or reduced in order to increase trade and investment. Obviously that refers to the undercutting or loosening of labour laws, or a race to the bottom, as it were. It also provides a framework for New Zealand in which to raise concerns on labour issues with Hong Kong.

I am particularly pleased to see this because whilst spending some time doing work with an international non-governmental organisation in a voluntary capacity over the years, I saw numerous cases of very loose arrangements by corporates in the US in particular. For example, corporates that had significant contracts with companies operating in the Philippines stated, within their own internal organisation, that their expectation was that labour laws be upheld within the company they were contracting in, and that the labour laws of that country be upheld, but we frequently saw that that was not the case. Yet who has the greatest lever to ensure that even the Philippines’ labour laws are upheld other than the company that is holding that contract in its hands? Who has the power to say that if labour laws and minimum wage terms and conditions for workers are not upheld, it will not continue to maintain the contract? Obviously it is the company, and, if it is not the company, it must be the country that maintains that level of responsibility.

I am loath to burden or load too much weight on to the notion of corporate responsibility because I think there is a fine line between corporate responsibility and State neglect, so I think it is important that we have equal measures of both, and I think this closer economic partnership proves that it is possible to insert a country’s values around labour laws as a whole into one of these agreements. On that note I am pleased to make a contribution to this debate. I look forward to hearing the remainder of the contribution from my colleague Dr Norman.

We were talking about the role of free-trade agreements and the increase of the sale of dairy into China—via Hong Kong but also directly into China—and the fact that the New Zealand - China Free Trade Agreement has nothing whatsoever to do with the fact that we have had an increase in dairy being sent to China. In fact, it is all to do with the San Lu disaster. One of the things that people do not realise is that San Lu was working jointly with Fonterra when, basically, it was directed by the Chinese Communist Party not to talk about the fact that it was killing children with the melamine-infected milk products it was selling to Chinese parents. The products were killing children across China and making many children in China very, very sick. But the Chinese Communist Party directed that the company was not to discuss anything to do with food safety in the lead-up to the Olympics, because the party did not want any disturbance of the positive propaganda it was getting around the world with the Olympics. So the Chinese Communist Party committee that controlled San Lu decided that it would not do a full recall. There was then a board meeting of San Lu, where there was a Fonterra representative. At that board meeting, which was the legal formal structure that controlled San Lu, a decision was made that there would be a full recall—or at least that is what the Fonterra representative said. The Fonterra representative was on the phone at the board meeting.

At that point, the Chinese Communist Party then overruled the board, and in fact decided not to have a full recall. That is the reality that stands behind our dealing with China. Many people look at the formal legal structure, such as of the board of San Lu, but in fact if we want to have a proper understanding of what kind of relationship we have with China, then we need to look at the fact that it is the Chinese Communist Party—

The CHAIRPERSON (Eric Roy): Leave was sought for a wide-ranging debate over the four clauses within this bill, but I am struggling a wee bit to see the relevance of the member’s point.

💬 Todd McClay: So’s everyone on TV.

The CHAIRPERSON (Eric Roy): The member will take a walk if he is not careful. I am being as lenient as I can, but I ask the member to make the speech relevant to the four clauses.

The relevance, for those who are struggling to see it, is that there has been much discussion in this debate—which Mr Chairperson has allowed—that these free-trade agreements increase trade with China. That has been the argument made. In fact, that is not true; it is just what people argue. If we look at the facts of the matter, we discover that the increase in trade to which people have been referring in the debate that Mr Chairperson has been allowing, is due to the fact of the San Lu disaster, and it has nothing whatsoever to do with the argument that people have been making—which is that it is because of the free-trade agreement.

We can understand the San Lu disaster only if we understand the role of the Chinese Communist Party within that company. The disaster had nothing to do with the formal legal structures that people imagine they are working with in China, such as the board of San Lu—and those are the kinds of legal structures we are dealing with—because in fact the real people who controlled San Lu were the Chinese Communist Party.

It may be of interest to people, in trying to understand the kind of relationship we are developing with China through these free-trade agreements, and other kinds of relationships, to know that in fact San Lu then paid an organisation called Baidu to censor all of the Internet searches for San Lu and milk powder. So all of the searches by parents inside China, who were trying to understand what was going on, were censored because San Lu paid for them to be censored. If that is the basis on which people became poisoned, and if that then resulted in a big increase in New Zealand’s sales of milk products to China, it had nothing whatsoever to do with the free-trade agreement. People think that it had something to do with it, but Chinese parents were desperate for safe food to give to their children because of the San Lu disaster. The San Lu disaster happened because of the control of the Chinese Communist Party over the board of San Lu. Even though, formally speaking, the board was in control, in fact the Chinese Communist Party branch within San Lu controlled that organisation.

If members do not believe me, then I suggest they read something about it. A very good book called The Party, by Richard McGregor, explains the role of the Chinese Communist Party. He was a journalist for the Financial Times and spent many years living in China. If members read that book they will see that it mentions San Lu at some length, and explains why the New Zealand Government was duped into believing that the board of San Lu controlled that organisation when in fact the Chinese Communist Party controlled it.

Labour and National do deals with what they think is the Government: the President, the Prime Minister, and all the rest. Of course, the people who control what happens in China are the Chinese Communist Party; Government officials are merely the front. So the people with whom Labour and National are doing deals when they go to develop free-trade agreements or think they are doing a deal with—say, Hu Jintao, the President of China—are not the real powers. In fact Hu Jintao has his power because he is the Secretary-General of the Chinese Communist Party.

💬 Dr Paul Hutchison: I raise a point of order, Mr Chairperson. I just note that the member persists in talking of a free-trade agreement with China. The bill we are on is about the New Zealand - Hong Kong economic partnership agreement. He is out of order.

The CHAIRPERSON (Eric Roy): Yes—

Speaking to the point of order—

The CHAIRPERSON (Eric Roy): I will hear the member.

The Hong Kong free-trade agreement will be brought into force as a result of this bill; this is one part of bringing it into force. It is the parallel agreement to the China agreement, so all of us have been discussing both together because they are intimately connected.

The CHAIRPERSON (Eric Roy): The member is entitled to discuss other things for comparative purposes, but the whole thrust of the member’s speech is not relevant, really, to the bill. Unless he comes back to the bill, I will terminate his speech.

This bill, by changing the tariff regime in New Zealand, implements the content of the Hong Kong deal—the so-called free-trade deal. But it is not actually a free-trade deal. Anyone who knows anything about trade policy knows that this is a preferential trade deal, but that is kind of irrelevant because most people voting on this do not know anything about trade policy. It is actually a preferential deal—that is, it creates a preferential treatment of goods and services between New Zealand and Hong Kong, and this bill implements that preferential trade deal.

The parallel agreement that goes alongside that is the New Zealand - China free-trade agreement, which is also a preferential trade deal between New Zealand and China. Those two agreements sit side by side, and this bill implements some components—only a small element—of the Hong Kong - New Zealand preferential trade deal, because only a small element requires legislation to be changed. The large bulk of the Hong Kong - New Zealand preferential trade deal does not require legislation. It is only the parts about tariffs in particular that need changing. Of course, we already send our goods into Hong Kong tariff-free, so although we are reducing our tariffs, they are not reducing theirs. They do not need to, because we do not need any of this agreement to be able to get our goods into Hong Kong tariff-free. But let us put that to one side, because we all like to believe in the myth that we do.

The problem we have when we are signing up to these agreements with China is that we imagine that with this deal we are signing up with something that looks like our Government. So we think that our Government is signing an agreement with the Hong Kong Government, or with the Chinese Government as the case may be, but in fact in China things do not work like that. The Governments there are actually the puppets, if you like, of the Chinese Communist Party. The leaders of the Chinese Communist Party are the puppet masters, and anyone who knows anything about the way China works will know that in fact it is the Chinese Communist Party that determines what happens. When we look at the parallel structures that look like New Zealand Government structures, we think they are very similar on the face of it. But they are not; they are quite different structures, which are secretly and entirely under the control of the Chinese Communist Party.

I will just give members one example, just in case there are some doubters about this. Luo Gan, who was on the Politburo Standing Committee—the body that controls the Chinese Communist Party—until 2007, said: “There is no question where legal departments should stand. The correct stand is where the party stands.” That means that courts in China are required to give verdicts that the Chinese Communist Party directs them to give. The courts are entirely under the control of the party. If we do not understand that the nature of China is different from the nature of New Zealand, and that all of the institutions—the media, the courts—are all under the control of the party, and not separate institutions, then we do not understand what we are dealing with when negotiating deals like this one. That is what happened to Fonterra with San Lu. Fonterra did not understand that that is what they were dealing with. In negotiating this deal, some do not understand that we are not negotiating with a Government that works in the same way as the New Zealand Government does.

So when we sign up to this deal, we are not getting what we think we are getting; the way China works is very different from the way in which New Zealand works. That is why New Zealand has made so many mistakes in dealing with China, and San Lu was simply the worst of them. That is why we will continue to make mistakes until we understand exactly what we are dealing with when we sign up to treaties like this one.