Made in Hong Kong or made in China?
Trade Minister Jim Sutton is relaxed
about the free trade agreement signed last month between China and Hong Kong.
He does not expect it to reduce Hong
Kong's interest in concluding negotiations with New Zealand.
Under the closer economic partnership
between China and Hong Kong, China will lift tariffs on 273 types of Hong
Kong-made goods, including electrical and electronics products, textiles,
clothing and jewellery.
This is expected to save its exporters
billions of Hong Kong dollars.
The rules of origin - strictly defining
"made in Hong Kong" - are still being negotiated.
New Zealand's efforts to develop a free
trade agreement (FTA) with Hong Kong came unstuck over rules of origin.
The China-Hong Kong agreement also opens
up 17 sectors in China, including banking and financial services.
Sutton noted New Zealand and Hong Kong
have largely complementary economies. The two countries compete with very few
products in the Chinese market.
The agreement is, therefore, unlikely to
have significant adverse effects for New Zealand exporters to China but could,
in fact, be positive "by encouraging China to undertake further liberalization
of its economy," Sutton said.
He affirmed that New Zealand remained
interested in concluding an agreement with Hong Kong.
The key sticking point is a difference of
opinion over rules of origin - in particular, the ability of goods subject to
Hong Kong's outward processing arrangement (OPA) with China to qualify for
tariff preferences.
Sutton does not expect the Hong
Kong-China FTA to provide the key to resolving this issue.
Business New Zealand chief executive
Simon Carlaw says trade deals are usually struck between sovereign states, not
between two parts of the same entity, "so it's hard to know what to make
of it."
But there are real differences and
tensions between China and Hong Kong, so "perhaps the deal should be taken
at face value, particularly if WTO rules apply."
Carlaw is pressing for a more robust
definition of the term "made in Hong Kong" and "rules of
origin" than was explored during the failed New Zealand/Hong Kong
negotiations.
If such a definition emerged from the
Hong Kong-China deal, "this could be useful for future Hong Kong/third
party free trade agreements."
Bruce Goldsworthy, the Northern Employers
and Manufacturers' Association manager of advocacy and manufacturing services,
says Hong Kong has an overseas process agreement which provides for goods to be
manufactured in Mainland China but retain Hong Kong origin, as long as the
exporting company is owned or based in Hong Kong.
Clearly, this does not meet the
established New Zealand requirement of 50% added value or for it to be where
the final manufacturing process takes place, or to claim origin and any
concessionary tariff treatment.
New Zealand Customs has maintained it
will not be able to police rules of origin on goods from Hong Kong if Hong Kong
insists on retaining its OPA, Goldsworthy says. "And obviously the Hong
Kong people were not anxious to forego an established trade practice with a
country the size of New Zealand when they were hoping for much bigger
fish."
Even so, Goldsworthy reckons the Hong
Kong-China FTA negotiations will not affect the stymied New Zealand-Hong Kong
FTA. He sees the Hong Kong-China agreement as an interesting development
because it tends to indicate Hong Kong and China are to remain separate
jurisdictions in the foreseeable future rather than move towards becoming one
country.
Theoretically, it shouldn't affect trade
between New Zealand and either Hong Kong or China, he says.
John Walley, chief executive of the
Canterbury Manufacturers' Association, says the definition or rules of origin
are "critical" for a bilateral between New Zealand and Hong Kong.
Manufacturers are concerned that
back-door entry into this country will be gained for items that
"notionally" originate in Hong Kong but really come from China.
Provided the origin rules avoid the
back-door issue, the bilateral deal between China and Hong Kong is largely
neutral.
Bill Rosenberg, a critic of New Zealand's free trade initiatives, says textiles and clothing are the most important in terms of implications for New Zealand. Because the rules of origin have been a sticking point in negotiations for the New Zealand-Hong Kong agreement, the definition decided by China and Hong Kong could make or break any future FTA with New Zealand, he said.
The China-Hong Kong deal is part of the
integration of the Chinese and Hong Kong economies, however, says Rosenberg.
Therefore the deal makes an FTA even more
hazardous for New Zealand, "because enforcing the rules of origin will
become even more murky, impractical, and easy to evade."
At this stage, the deal involves only
manufactured goods.
While all products will ultimately be
covered, no timetable has yet been set for the inclusion of dairy and other
agricultural products.
Fonterra, which has been active in the
Hong Kong market for more than 40 years and has had a company in the market
since 1982, therefore does not expect the closer economic partnership to have
an impact on its activities in the region.
Both Hong Kong and China are dependent on
imported dairy products to meet local demand and will continue to be so, a
spokesman said.
Any reprocessing in Hong Kong for
re-export to China is likely to be of low-volume, high-value items.