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4.1 An overview of trade policies applying to services
4.2 Trade trends in specific sectors
4.3 Overall impact of liberalising trade in services
The services sector is becoming increasingly important in the international market place and is a significant contributor to both China and New Zealand's foreign exchange earnings. The export of services can take many forms, from the provision of a service to overseas consumers in the provider's home country through to service suppliers establishing a commercial presence or being employed overseas.
Services trade between China and New Zealand is governed by the WTO General Agreement on Trade in Services (GATS). Trade in services is an increasingly important element of the overall bilateral economic relationship between China and New Zealand. A growing number of Chinese and New Zealand companies are establishing cross border operations.
China
China's trade in services has continued to maintain steady growth in recent years. WTO statistics indicate that in 2003, the total volume of China's services trade reached US$102 billion, of which exports (or revenue) accounted for US$46.7 billion and imports (or expense) accounted for US$55.3 billion. China's services imports and exports rank eighth and ninth in the world and comprise 3.2 percent and 2.7 percent respectively of the world's total services imports and exports. Nevertheless, the proportion of the services sector as a percentage of GDP in China is lower than that in most developed countries.
Since China's accession to the WTO, new laws and regulations related to services have been promulgated, such as Regulations on Representative Offices of Foreign Law Firms in China, Regulations of the Peoples Republic of China on Chinese-Foreign Cooperation in Running Schools, Regulations on Management of Telecommunication Enterprises with Foreign Capital, Regulations of People's Republic of China on Financial Institutions with Foreign Capital, Regulations on Insurance Company with Foreign Capital, Regulations of People's Republic of China on International Maritime, Regulations on Contractual Joint Ventures for Sound Recording Distributions, and Decision of the State Council on Amending the "Regulations on Travel Agency". According to the commitments in the Protocol on the Accession of the People's Republic of China, China will further liberalise packaging services, maintenance and repair services, rental and leasing services, mobile voice and data services, construction and related engineering services, insurance, finance, tourism and transportation services in 2004.
New ZealandServices dominate the New Zealand economy, contributing around two-thirds of GDP. The largest service sectors in 2003 were business services, wholesale trade, property services and retail trade. Communication services, cultural and recreational services, health and community services, finance and insurance, transport and storage and business services have been the fastest growing service sectors. Growth in services exports has also been significant. Transport, travel and education have been the main services exports, but the range of exported services has diversified in recent years.
By international standards, New Zealand's private services sector is considered to be open with few barriers to foreign services suppliers. Indeed, where immigration and qualification requirements have been met, national treatment is generally extended to foreign suppliers of services.
Foreign investment in the provision of services is subject to the Overseas Investment Commission,3 while financial institutions with a commercial presence in New Zealand remain subject to the provisions of the Financial Reporting Act 1993 and the Companies Act 1993.
Immigration legislation and policy is administered by Workforce Services, which is part of the Department of Labour. Operational branches are branded as the New Zealand Immigration Service. The key legislation is the Immigration Act 1987, along with the Immigration Regulations 1999. Government Residence Policy and Government Immigration Policy are set out in the New Zealand Immigration Service Operational Manual. All policies are published in the online Manual [external link to NZ Immigration Service website].
In recent years, the services trade between China and New Zealand, especially New Zealand's services exports to China, has increased rapidly. According to New Zealand statistics, the services trade related to transportation is approximately US$262.5 million, tourism approximately US$312.5 million, and education approximately US$500 million. The total amount of the above three sectors is about US$1.075 billion. Compared with the US$2.6 billion of commodity trade between the two countries, the scale of services trade is considerable.
In the course of conducting this feasibility study, a range of issues affecting bilateral trade in services between China and New Zealand have been identified. These include, inter alia, restrictions on market access, regulatory and capital requirements, and transparency issues.
Domestic and international tourism trade is of growing importance to both the Chinese and New Zealand economies. Two-way tourism flows have increased substantially in recent years, reflecting the public interest of each country in the other. Both countries offer substantial opportunities for further growth in their tourism sector.
Tourism was one of the earliest open service sectors in China. At present, there are no restrictions on cross-border supply and foreign consumption of tourism services. China has established guidelines for attracting foreign investment and an overseas commercial presence in this sector. The proportion of foreign commercial activity in this sector remains considerably high in the Chinese economy. Foreign service suppliers are by and large permitted to enter into the main sectors and parts of the Chinese tourism market. With regard to the hospitality industry (including apartment buildings and restaurants), foreign services suppliers may construct, renovate and operate hotel and restaurant establishments in China in the form of joint ventures. Both foreign majority ownership and wholly foreign-owned subsidiaries are permitted. With regard to travel agencies, joint venture travel agencies with foreign majority ownership are currently permitted. Wholly foreign-owned travel agencies will be permitted in China within six years after the accession to the WTO.
At present, tourism is a very important service export sector for New Zealand. In the year ending 2003, tourism trade accounted for 48 percent of New Zealand's total service trade. Tourism service exports accounted for 62 percent of total service exports (this figure does not include airfare expenditure). New Zealand's total tourism service exports rose to US$4.303 billion in 2003, with a surplus of US$2.386 billion.
In 2003, the number of short-term visitors from New Zealand to China increased to 43,000. The attractions of China's scenery and culture should continue to build those numbers. The number of short-term visitors from China to New Zealand has been increasing during the past five years. Total numbers reached 75,000 in 2003.
China has become the sixth biggest source of tourists into New Zealand. This follows an agreement in May 2004 to expand the number of Chinese travel agents authorised to operate under the Approved Destination Status (ADS) scheme.
China and New Zealand have each become important tourist sources for the other. The establishment of a China-New Zealand FTA will promote the liberalisation of bilateral tourism, and improve demand and cooperation in the industry. At the same time, a future FTA will facilitate the tourists of both countries, and thus increase the demand for bilateral tourism.
Education services are an important sector in the bilateral services trade between China and New Zealand. New Zealand's statistics show that more than 50,000 Chinese students studied in New Zealand in the year ended 30 June 2003. China has become the largest source country of international students for New Zealand.
Enhancing exchange and cooperation on education with other countries and regions is an important component of China's openness policies. At present, China allows foreign educational service organisations to provide services in primary, secondary higher, adult and other education sectors, including the establishment of joint schools. New Zealand's comparative advantage in education will help the two sides further promote cooperation. It is anticipated that, with the establishment of an FTA, more educational institutions from New Zealand will come to China to run schools in cooperation with Chinese education institutions, especially in the areas of telecommunication, technology, biology, new materials, energy, resources and the environment, management, finance, legal, high technology, and vocational education.
New Zealand's private education services sector is considered to be open, with few barriers to foreign services providers who wish to establish private institutions. Where immigration and qualification requirements have been met, national treatment is generally extended to foreign suppliers of education services.
China and New Zealand are encouraging diversification in modes of supply of education services, beyond the predominant mode of consumption abroad (i.e. Chinese students studying in New Zealand). Education providers in both countries are more actively considering the mode of commercial presence (i.e. New Zealand providers offering education services to students in China and vice versa), including through joint programmes and joint ventures. With clear and predictable guidelines for establishing an onshore presence in each country, education providers will be able to establish lasting, beneficial relationships with providers in the other country.
There is growing interest in trade between China and New Zealand across a range of professional services - e.g. legal, accounting, architectural, design, consultancy, occupational health and safety etc. It is recommended that the possibility of developing and expanding trade in professional services should be considered in the FTA negotiations.
Wholly foreign-owned enterprises are allowed to invest in China's construction sector. They can undertake construction projects financed completely by foreign investment and by loans from international financial institutions or awarded through international tendering. They can also take part in Chinese-foreign jointly constructed projects where foreign investment is equal to more than 50 percent, or less than 50 percent if the project is technically too difficult to be implemented by Chinese construction enterprises alone. New Zealand construction enterprises with capital and technology expertise may find many new business opportunities in China. In recent years the demand for construction and engineering services in China has grown strongly. In any FTA negotiations there is potential to consider improved access for New Zealand suppliers of construction and engineering services to the Chinese market.
China, meanwhile, has some comparative advantages in the engineering and construction sector that it believes could benefit New Zealand in the development of infrastructure such as motorways and road projects. For the year ended 31 March 2004, the value of construction services in New Zealand was US$3.586 billion or 4.5% of New Zealand's GDP. The demand for construction and engineering services in New Zealand has increased rapidly. This means that in the context of FTA negotiations there is potential to consider improved access for Chinese construction and engineering services to the New Zealand market.
New air services arrangements agreed between New Zealand and China this year provide for New Zealand passenger airlines to operate seven times per week to any international airport in China, and for Chinese passenger airlines to operate seven times per week to any international airport in New Zealand. There are no restrictions on the number of airlines that may operate, or on the type of aircraft that may be used. There is flexibility in the election of intermediate and beyond points, and code sharing with third country carriers is permitted. "Open skies" cargo services were agreed.
These new arrangements, and the continued growth in visitor numbers and trade, are expected to lead to direct services between the two countries in future.
Services associated with aviation
There is a healthy trade in a range of services associated with aviation between China and New Zealand. The trade takes place in both China and New Zealand. The range includes consultancies associated with the development of airports in China, aircraft service arrangements, metrological services, air traffic control services, aeronautical engineering, aviation software (aircraft and infrastructure), crew and pilot training, aviation law and regulation development. Given the pace of development of the aviation sectors in both China and New Zealand, the level of this trade can be expected to grow. It is recommended that means by which this trade can be facilitated should be considered in an FTA negotiation.
Maritime transport services
Foreign services suppliers are now permitted to establish joint venture shipping companies in China with foreign investment less than 49 percent of the total registered capital. Container line shipping between Asia and New Zealand is currently operated by the China Ocean Shipping (Group) Company (COSCO). Further cooperation between Chinese and New Zealand maritime transport enterprises is strongly encouraged.
In China, foreign service suppliers engaged in environmental services are allowed to provide services in the form of joint ventures. Foreign majority ownership is permitted. A range of consultants is already trading environmental services between China and New Zealand. As outlined in the Trade and Economic Cooperation Framework, both countries are committed to exploring opportunities to share information and cooperate on measures to promote environmental protection, sustainable development and resource management, and biodiversity protection. Both countries offer experience and expertise that could help achieve these objectives and will look at what measures can be adopted to help facilitate the exchange of this knowledge and expertise.
China's market for financial and insurance services has been liberalised considerably since its accession to the WTO. New Zealand has one of the world's most efficient and open insurance and financial services markets. Currently there is only limited financial and insurance cooperation between China and New Zealand.
Chinese and New Zealand companies offer a range of specialist products and services that may be of benefit to companies or consumers in the other country. It is recommended that possibilities for encouraging the expansion of trade in insurance and financial services between China and New Zealand should be considered in any FTA negotiations.
Foreign service suppliers are permitted to establish contractual joint ventures with Chinese partners to engage in the distribution of audio-visual products, excluding motion pictures, and to construct and/or renovate cinema theatres with foreign investment of no more than 49 percent. China has also allowed the yearly importation of 20 motion pictures for theatrical release on a revenue-sharing basis.
Both China and New Zealand have considerable expertise in the film and motion picture industry. Both countries offer diverse and interesting scenery for the production and post-production of films. It is recommended that an FTA explore possibilities for encouraging the expansion of trade in film industry services between China and New Zealand.
China and New Zealand have advanced agritech sectors. There is already considerable cooperation between China and New Zealand in this area. It is recommended that the possibility of developing and expanding the agritech services sector between China and New Zealand be considered in any FTA negotiations.
Consultations conducted throughout the course of this study have demonstrated strong interest in expanding trade in a range of other services. This list is not exhaustive but includes services in the areas of distribution, retail, occupational and health consultancy, R and D, technical testing and analysis, and related scientific and technical consultancy. It is recommended that the possibility of developing and expanding trade in these services sectors be considered in any FTA negotiations.
The study has demonstrated that services trade is an important component of total bilateral trade. A range of issues currently impedes trade in services. These issues include restrictions on market access, restrictions on operating wholly foreign-owned services companies, minimum capital requirements, restrictions on the repatriation of funds, regulatory requirements, variations in requirements at the central, regional and city levels, and the absence of a central register of rules applying to foreign service providers. It is recommended that that these issues be addressed in any future FTA negotiations. All potential impacts on both countries services sectors should be taken into account in any FTA negotiations.
There are a number of benefits from the possible liberalisation of controls on the services sector in both economies. Access to new technologies and expertise can be a significant positive factor for economic development and consumer welfare.
The overall impacts of further liberalisation in services trade are expected to deliver positive results for both the Chinese and New Zealand economies. These expected results of further liberalisation of services trade have been confirmed by the economic modelling undertaken during the study as outlined in Chapter 8.
3
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