THE GOVERNMENT’S SALES PITCH ON THE HONG KONG AGREEMENT AND SOME RESPONSES

In April 2001 the Minister of Foreign Affairs and Trade released a document called Hong Kong and New Zealand - Initial Analysis of the Bilateral Trade and Economic relationship as Background to a Possible “Closer Economic Partnership” Agreement. Copies can be downloaded from http://www.mfat.govt.nz/ or obtained from MFAT, Private Bag 18901, Wellington. Comments on the paper must reach them by 25 May 2001.

The agreement is called a Closer Economic partnership because the government knows there is increasing opposition to Free Trade and Investment Agreements and wants to re-brand it to appear more benign.

As expected, the paper claims the Agreement is really important because it shows the government is still committed to the globalisation agenda - but admits that the Agreement won’t really change very much - and what it does change will only be good - except for the possible damage to the clothing and textile industry - which it will try to prevent – but the industry needs ‘adjustment’ anyway.

The paper spends most time on the issue of trade in goods which, except for the clothing industry, will have the least impact. It spends only one page on the critical issue of investment, and one paragraph in an annex on government promises not to discriminate in favour of New Zealand suppliers of goods and services.

Here are just a few of the government’s claims, and our counter-points. You might find this useful if you want to send in a response to the document. But if you do make a response, make sure you keep the pressure on afterwards; otherwise, based on the experience with the Singapore agreement, the government will claim that you are among those it has consulted and ignore what you have said without having to justify itself.

‘The analysis of the relationship is premised on the Coalition Government’s stated goals of

- developing active business development policies

- increasing exports in goods and services

- attracting investment for growth

- reducing compliance costs for business.’ (p.7)

The analysis is driven by these economic interests. Social, economic, cultural or Treaty goals are irrelevant, except it is argued that free trade and unrestricted foreign investment can achieve them – or they are necessary sacrifices - or they have been protected from coverage (eg with the Treaty).

For example, the ‘preambular principle’ in the statement agreed by the two governments states that: ‘Mindful that liberalised trade in goods and services will assist the expansion of trade and investment flows, raise the standard of living and create new employment opportunities and improved conditions in their respective countries .’ (Annex A, p.2)

That is what Maori have been told for 160 years and has become a mantra since 1984. The result is growing inequality and poverty, the continued dispossession of tangata whenua, massive foreign debt, a chronic balance of payments problem, foreign control of key resources, insecure employment and hollowed out regions. Isn’t this the government that rejected claims that the free market can deliver our social goals?

‘In order for a CEP with Hong Kong to best serve the needs of New Zealanders, it is important that negotiators have detailed information on the needs and interests of those who are currently trading with Hong Kong.’ (p.5)

Since when have people trading with Hong Kong had the right to decide the needs of New Zealanders? The document makes it clear they are only interested in the views of exporters – even though the agreement would affect import-competing local businesses, Maori, workers, unions, local government, schools, and many other ‘New Zealanders’.

Entering an agreement would ‘reinforce linkages to North Asia and raise our profile as a business partner within the region.

New Zealand’s ‘open economy’ is hardly a secret. The balance of trade with Hong Kong is already heavily in NZ’s favour (our exports to Hong Kong greatly exceeds our imports from Hong Kong). This agreement is more likely to increase imports rather than exports. Hong Kong investors already profiteer from our open economy (see below).

. . . We would be signalling . . . that we are an open economy that is easy to do business with, and which is keen to attract productive inwards investment

To achieve this ‘signalling’ effect, the government wants to take the country further down a global free market track conflicts with many of its domestic social, economic development, Treaty, and cultural priorities, and fetters the choices of future governments.

. . . would focus the attention of Hong Kong’s commercial interests on New Zealand

There are many other ways to focus attention on New Zealand without making binding commitments that work to Hong Kong’s favour and have real costs to New Zealanders

. . . and would provide more open and secure access for New Zealand businesses wishing to operate in Hong Kong’. (p.7)

The document provides no evidence of any sectors that will gain new access from a binding agreement that is not available already. As with Singapore, any restrictions that are really important to Hong Kong are likely to remain in place by not making commitments or using weasel words.

“Both economies have accepted the 1995 ‘Bogor’ commitment to achieve free and open trade and investment in the Asia pacific region for industrialised economies by 2010 . . . A CEP with Hong Kong ahead of the APEC timetable would have a valuable demonstration effect within APEC.’

This confirms that the agreement is really about kick-starting the paralysed APEC and WTO processes. The APEC goal is to remove all restrictions on trade and investment among the richer countries of the region by 2010 and poorer ones by 2020 (which category is Hong Kong?). That means unrestricted ‘trade’ in all goods (ie no tariffs); unrestricted trade in all services, including health, environment, education, cultural services; and removal of all restrictions on foreign investment. At the same time the government says it is committed to nation building!

The agreement ‘would have a key objective of increasing bilateral flows and generating new employment opportunities in New Zealand through export led growth in the economy.’ (p.7)

There is no evidence there will be any increase in trade flows. Hong Kong doesn’t impose tariffs on imports so, as the paper admits, ‘there are no immediate commercial gains from tariff elimination’ (p.7). It seems unlikely that minor changes in customs rules will make a huge difference to ‘export-led growth’. In any case, if such changes are mutually beneficial they could be negotiated in their own right without having to concede a full free trade and investment agreement to achieve them. Hong Kong has a largely unrestricted services market, so again there are no demonstrable gains for New Zealand service ‘exporters’ that could not be made already. And any new Hong Kong investors who are attracted by stronger guarantees that their profits will be protected are likely to continue their current practice of investing in non-productive investments. So, where are the jobs coming from . . . ?

‘Hong Kong and New Zealand have very different trade profiles. While New Zealand ’s major goods exports are primarily agriculture based, Hong Kong ’s are almost entirely based on manufactured products. Hong Kong and New Zealand therefore have largely complementary economies, with a CEP agreement giving each country an opportunity to increase trade in [the] area where it holds a competitive advantage.’ (p.15)

This agreement is not about agriculture. But it is about manufacturing. That means Hong Kong will reap the benefits - and New Zealand’s manufacturing capacity will suffer. That’s a pretty strange kind of economic development strategy!

‘A CEP would have implications for New Zealand’s protected industries, including the textiles, clothing and footwear (TCF) sectors’. (p.7)

New Zealand would be removing its last remaining tariffs - those protecting the fragile textile clothing and footwear industry – despite the government’s supposed freeze on tariffs until mid-2005. That means more clothing and textile factories are likely to close, more Maori, Pacific and other women will lose their jobs, and more towns will lose one of their last remaining industries. The document calls these “adjustment costs”, which presumes that new higher quality and higher paid businesses and jobs will grow out on the graveyards of the old. They’ve been saying that for the past 16 years!

‘The overall policy is that tariffs would be only removed before [July 2005] on a reciprocal basis’. (p.21)

But Hong Kong isn’t removing any tariffs, because it doesn’t have any. So where is the benefit to New Zealand?????

‘The risk arises mainly from the possibility that non-Hong Kong origin goods may claim tariff preferences . . . Concerns over circumvention would need to be countered by the design and application of a robust rules of origin regime’. (p.7-8)

Almost half of Hong Kong’s total exports are re-exports of clothing made in China. All but 8% of its exports to New Zealand are re-exports! Because production costs in China are so low, it will be relatively easy to satisfy the local content requirement which NZ set for Singapore of 40% (it is 50% under CER).

Such rules are notoriously easy to get around anyway- despite the government’s promises of a ‘robust’ regime. Hong Kong has a huge amount of trade and its borders with China are very porous, so cheating will be almost impossible to detect and eliminate. Their traders also contract out extensively, so it will be relatively easy to manipulate production to satisfy any technical requirements while maintaining their price advantage.

The agreement would ‘set in place a process to reduce compliance costs for business through the elimination or reduction of technical or sanitary/phytosanitary barriers to trade (it would not however affect our ability to maintain in place a robust biosecurity system). (p.8)

What it doesn’t say is that those rules must be necessary – ie. the risk must be scientifically proved and not just a precaution – and the measure adopted must be the one which interferes least with trade, even if it’s not the first preference. Again, anything mutually beneficial on this matter could be agreed to separately.

‘A CEP would provide New Zealand with a commitment that our exports will continue to face zero tariffs on a permanent basis.’ (p.7)

There is no evidence of any future risk that Hong Kong would close up its markets to New Zealand imports. Doing so would be a complete turnaround from Hong Kong’s history as a free port and its niche in the world economy. If it did – presumably on instructions from the Chinese government – is it really going to be concerned about its commitment to New Zealand in this agreement?

The agreement would ‘offer more open and secure access to the Hong Kong market for New Zealand services exporters’. (p.8)

Although Hong Kong has made limited commitments under the WTO services agreement it imposes very few restrictions on New Zealand services operators. Again, there is no reason to believe Hong Kong is likely to tighten up, justifying the concern about ‘security’; its history and global niche suggests quite the reverse. Indeed, the paper notes that Hong Kong is keen to expand opportunities for New Zealand ‘education exports’ (mainly fee paying students coming here, or franchises set up in Hong Kong). The agreement would add nothing. If Hong Kong is really concerned about retaining control over a particular service, they are likely to do the same as Singapore and keep that under a tight rein.

In return, New Zealand will guarantee not to limit access of foreign services providers to the NZ ‘market’ in an even wider range of services than it has committed at the WTO. It also promises not to discriminate in favour of New Zealand services providers. Because NZ has already gone so far we are already finding it impossible to restore some non-economic objectives in key services area, including broadcasting and education. More promises will make it worse.

While the document extols the opportunities for New Zealand suppliers in Hong Kong it says nothing about the likely impact of Hong Kong suppliers doing the same in this country.

The agreement ‘would also aim to attract increased flows of productive new investment from Hong Kong to New Zealand industries to assist the Government’s economic development priorities.’ (p.7)

The history of Hong Kong investment in NZ shows just the opposite. Hong Kong is often the transit point for money coming to and from tax havens, which is invested mainly in holding, real estate and business services companies. Major investments in NZ are in supermarkets, construction, property and hotels, banking and forestry. In 1998, 1999 and 2000 Hong Kong investors took more money out of the country than they earned.

The government is likely to follow the Singapore model and promise never to tighten the vetting of Hong Kong investment here – which means no investment below $50 million needs permission or can be required to meet a national interest test.

Worse, an Investment Protection and Promotion Agreement already signed with Hong Kong in 1995 promises not to take any actions which might reduce the value of their investments, even if there are very sound reasons for doing so. That promise applies at least until 2025. This document fails to discuss the damage this might cause or how a new agreement might intensify those risks.

Another objective is the liberalisation of government procurement through a framework of rules based on APEC’s non-binding principles and the WTO agreement. (Annex A, p.6)

This means central and local government cannot adopt a Buy NZ preference when it spends taxpayer or ratepayer money on purchases of goods or services, and must treat Hong Kong suppliers on an equal footing with New Zealanders. If Hong Kong does have any areas of procurement it considers particularly important it is likely to find ways to protect them, as Singapore did.

‘The two economies would discuss recent developments on trade and environment with a view to identifying issues of mutual concern for further dialogue and cooperation.’ (Annex A, p.6)

These are weasel words to avoid having any clauses on environment standards in the Agreement, as Labour’s policy had promised. And why do we need a free trade and investment agreement to do this??????

Trade and Labour will not form part of the agreement. The New Zealand government said it wanted a clause protecting labour standards, as its policy promises. Hong Kong said labour issues belong at the ILO, not in trade agreements. Both sides ‘would be prepared to continue the exchange on a need basis and in the appropriate context’. (Annex B, p.8)

This confirms the government’s priority of free trade and investment over its other policies. It also confirms the need for the CTU and other unions to stop focusing on labour clauses and start focusing on the damage which the agreement as a whole will do to New Zealand workers, communities and small businesses.

Even if a labour clause could be inserted it would have little effect if 60% of any product “Made in Hong Kong” can in fact be (and is) made in other countries.

The agreement would include standard exceptions designed to protect human, animal or plant life or health and a provision ‘to enable the New Zealand Government to adopt measures deemed necessary to accord more favourable treatment to Maori including in fulfilment of its obligations under the Treaty of Waitangi’. (p.8)

Despite all the racist fuss about the Treaty clause in the Singapore agreement, it provides no guarantees to Maori. Only the government can action the provision and Hong Kong can challenge moves which it considers are arbitrary or a disguised trade sanction. Nor does it provide any support for Maori workers in the TCF industries, address concerns about intellectual property rights, or recognise in any way the right to exercise tino rangatiratanga in the process of making international treaties.

The Agreement would be ‘open to accession by economies or other economic groupings that share its underlying objectives’. (Annex A, p.7)

This is part of the building block strategy where other countries (eg. Chile) or groupings (eg ASEAN) can form part of a bigger free trade zone without having to negotiate new agreements – and dealing with even the limited consultation and scrutiny that involves.