DONE DEAL: Premier Wen Jiabao (third from right in back row) and New Zealand Prime Minister Helen Elizabeth Clark (center) talk at the signing of the bilateral free trade agreement in Beijing on April 7

YAO DAWEI

The three years of hard work on negotiating a free trade agreement finally paid off for China and New Zealand. Chinese Commerce Minister Chen Deming and Trade Minister of New Zealand Phil Goff formally signed a free trade agreement (FTA) on April 7 in Beijing. It was the first FTA that the Chinese Government signed with a developed country.

New Zealand Prime Minister Helen Elizabeth Clark headed a delegation of political and economic leaders and witnessed the remarkable moment in the trade and economic development history of China and New Zealand, together with her Chinese hosts.

The two countries, which established diplomatic relations in 1972, seldom have had disputes. Therefore, their trade and economic cooperation has developed very stably, while their mutual political trust and mutual economic benefits have increased smoothly. New Zealand also was the first country that completed World Trade Organization (WTO) entry negotiations with China.

In November 2004, Chinese President Hu Jintao and New Zealand Prime Minister Clark jointly announced that the two countries were going to start FTA negotiations, making New Zealand the first developed country to begin such talks with China. New Zealand then became the first developed country to acknowledge China's market economy.

The two sides held 15 rounds of talks during the past three years. There was no great dissension between them, because they resolved all their problems on the basis of equality, mutual trust and negotiation. The leaders of two sides also expressed their strong wishes to advance bilateral political and economic ties through talks. In April 2006, Chinese Premier Wen Jiabao visited New Zealand and agreed with Clark on the goal of reaching an FTA within one to two years. They agreed it should be an overall high quality and balanced agreement that would be acceptable for both sides. In December 2007, China and New Zealand finally reached a consensus on all issues related to the agreement.

It is no doubt that the FTA will bring great economic benefits to both sides. Neither country will need to increase their expenditures to adjust their economic and social structures, because they have complementary economies. According to statistics from the China Customs, their bilateral trade volume was $3.698 billion in 2007, an increase of 26 percent over 2006. China's exports to New Zealand last year totaled $2.16 billion, a 33.4-percent increase over the previous year, while its imports were $1.538 billion, up 17 percent from 2006. China had a trade surplus of $622 million with New Zealand in 2007.

During the first two months of 2008, the bilateral trade volume reached $631 million, growing 20.4 percent over the same period in 2007. During those two months, China exported $370 million, an increase of 17.9 percent, and imported $261 million, an increase of 24.2 percent.

New Zealand Government statistics indicate the bilateral trade volume reached 7.75 billion New Zealand dollars ($5.59 billion) last year, for an increase of 10.4 percent over 2006. The amount was $1.9 billion, or 51 percent, more than the figure calculated by the Chinese side.

China mainly exports electric machinery and equipment, mechanical equipment, clothing, furniture, toys and iron and steel products to New Zealand. The latter exports dairy products, lumber, paper pulp and other paper products and wools to the former.

The New Zealand Government predicted that the free trade zone between the two countries would decrease the trade surplus on the Chinese side. Moreover, New Zealand's export volume will increase 39 percent within the next 20 years, while China's exports to New Zealand are expected to increase 11 percent. The New Zealand Herald said that after the FTA was implemented, New Zealand's trade volume with China would grow to $225 million, while saving $120 million in tariffs. Chinese enterprises generally will enjoy more beneficial trade policies and the country's citizens will receive better treatment in New Zealand, when they export to New Zealand or invest in the country. Meanwhile, the costs will be greatly lowered.

The direct effects of the FTA will not be the same for the two sides. According to the FTA, New Zealand will cancel all tariffs on products imported from China before January 1, 2016, while China will fulfill the same commitment for New Zealand before January 1, 2019. In services, New Zealand made commitments in 16 areas in four sectors-commerce, architecture, education and environment-which are greater than those it made to the WTO. China made the same commitments in 15 areas in four sectors-commerce, environment, sports and entertainment, and transportation. The two countries also promised each other in the FTA that they would offer job opportunities for the other. The agreement also contains stipulations on promoting and protecting investment through an efficient established mechanism for resolving investment-related disputes. The FTA also makes institutional arrangements on bilateral cooperation in the areas of customs, quarantine and inspection and intellectual property.

China is currently New Zealand's third biggest trade partner, as well as its fourth biggest importer and second biggest exporter. China's trade volume with New Zealand accounted for only 0.17 percent of its total foreign trade volume in 2007. Therefore, the FTA will bring China more exemplary effects in its relations with other trade partners than economic benefits.

The first exemplary effect is that the FTA will help make current international and multi-lateral trade rules advantageous for China's proper interests. There is a regulation in China's WTO entry protocol that lets other WTO members maintain their rights not to treat China as a market economy for 15 years. Another regulation says that other members can take special protective measures for products imported from China for 12 years. These regulations bring big risks for Chinese enterprises trying to defend their interests against foreign countries' anti-dumpling moves.

For China, the best way to eliminate these risks is to invalidate these regulations through bilateral or regional trade agreements. The majority of WTO members that have acknowledged China's market economy are developing countries. But exporting to developed countries is an important part of China's foreign trade, which makes the latter significant in the trade and economic arenas. Under such circumstances, New Zealand was the first developed country that acknowledged China's market economic position. To China, this means more than the amount of its bilateral trade volume growth.

A second exemplary effect is that the FTA can encourage other trade partners, especially developed ones, to treat trade and economic issues with China more rationally by strengthening cooperation instead of creating trade disputes. For example, it will help advance Australia's current FTA talks with China. Australia and New Zealand have an extremely close relationship. As early as the mid-1960s, the two countries started discussions about setting up a bilateral free trade zone and signed an elementary FTA. In the early 1980s, they signed and implemented an agreement to strengthen their economic ties. Now their FTA is one of the most wide-ranging ones that have created the most practical benefits.

Now that New Zealand has signed an FTA with China, China and Australia will accelerate their negotiations on signing a Sino-Australian FTA. It will bring both sides even bigger economic benefits than the Sino-New Zealand FTA, because Australia's gross domestic product (GDP) of $746 billion in 2007 was seven times greater than New Zealand's GDP of $102 billion. The Sino-Australian trade volume reached $43.846 billion in 2007, which was 11.9 times more than the Sino-New Zealand trade volume of $3.698 billion.

New Zealand actually looks forward to the signing of a FTA between China and Australia. Goff said that if such an FTA were signed, it would be advantageous to New Zealand, because New Zealand and Australia have their own trade agreement.

Regional economic integrity has played an important role in the world economy since the 1980s. Trade volumes inside regional economic groups currently account for more than half of the global trade volume. The trend for regional economic integrity in the world includes almost all regional economic communities. Every country has to take measures to cope with the trend to avoid being marginalized. China, as a big exporter, must improve its position in its negotiations of multilateral trade systems by signing FTAs and creating advantageous international trade rules, so as to protect its proper interests.