Free trade with China: a summary of what's ahead

With the Free Trade Agreement now signed by New Zealand and China, the focus has moved to enacting the changes it will bring. Bell Gully has produced a guide summarising key elements of the agreement, including tariff reductions, environmental cooperation and changes to labour, investment, immigration and customs policies.

New Zealand and China completed negotiations and signed a Free Trade Agreement in Beijing on 7 April 2008. The full text of the New Zealand-China Free Trade Agreement is available on the dedicated website maintained by the Ministry of Foreign Affairs and Trade (MFAT) www.chinafta.govt.nz

The MFAT website also contains a comprehensive guide, Navigating China, which is designed to assist New Zealand businesses to manage business opportunities in China.

Bilateral and multilateral Free Trade Agreements (FTAs) are, in part, a response to the slow progress of the World Trade Organisation's efforts to liberalise global trade. In a New Zealand context, our first and best known FTA was the Australia-New Zealand Closer Economic Relations Agreement (CER) signed in 1983. As CER has demonstrated, FTAs are not intended to be a static arrangement and 20 years after it was first signed, CER continues to evolve as New Zealand and Australia develop the concept of a single trans-Tasman market for goods and services.

Implementation

The signing of the NZ-China FTA is followed by an implementation process and the FTA is expected to come into force on 1 October 2008. It has become common for bilateral agreements to be signed between governments prior to being submitted to domestic parliamentary processes in order to show commitment to the agreement.

Generally, trade agreements such as FTAs are not directly incorporated into New Zealand law. Instead, in order to come into force, New Zealand's domestic parliamentary procedures require the text of the FTA, along with the texts of the Memorandum of Understanding on Labour Cooperation (MOU) and the Environment Cooperation Agreement (ECA) - which are treaties between New Zealand and China - and the associated National Interest Analysis to be presented to Parliament for consideration, and released publicly.

The FTA, MOU and ECA will be examined by a select committee which may call for public submissions. After the select committee process, legislation to implement New Zealand's obligations under the FTA (eg. tariff cuts) will need to be passed before New Zealand is able to ratify the FTA.

The final step in the process is an exchange of notes with China, indicating the completion of domestic legal procedures so that the FTA can be entered into force in both countries.

Structure

The FTA comprises the FTA itself along with 14 annexes, two side letters, an arrangement governing the establishment of a working holiday scheme and the MOU and ECA.

The FTA also includes a number of significant exceptions that enable either party to enact laws to protect national security and other interests.

The FTA can also be amended by agreement in writing by the parties, with amendments coming into force 60 days after the parties have completed the necessary domestic legal procedures. In keeping with most bilateral agreements, the FTA can also be terminated by a party by giving 180 days' written notice of the intention to terminate.

While specific provisions in the FTA have review processes built into them, the FTA does not contain a review mechanism. Instead, the parties have established the New Zealand - China Free Trade Area Joint Commission which may meet at the level of senior officials, or ministers to consider matters relating to the implementation of the FTA and conduct a review of the operation and implementation of the FTA within two years of entry into force of the FTA (and at least every three years thereafter). The FTA Joint Commission may consider proposals to amend the FTA, oversee its further elaboration and consider issues referred to it by the committees and working groups established under the FTA or by either party.

Bell Gully Guide

Bell Gully's guide is intended to provide an overview of the NZ-China FTA. More information is contained on the MFAT website referred to above, including the text of the various annexes, side letters and arrangements that must be read in conjunction with the FTA.

Click here to view a copy of the guide.

For more information please contact:

David Flacks
Partner

Simon Watt
Partner

Enquiries and information

For more information on any of the cases, articles and features in Commercial Quarterly, please email Diane Graham or call her on 64 9 916 8849.