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Link to: Background to initial analysis - discussion paper - April 2001
This discussion paper provides an initial analysis of the bilateral trade and economic relationship between New Zealand and Hong Kong. It looks at the negotiating issues and likely impacts of a closer economic partnership agreement between the two economies. The analysis of the relationship is premised on the Coalition Government's stated goals of:
The paper also examines the status of Hong Kong's labour and environmental policies and laws in line with the importance the Coalition Government attaches to these issues.
The Hong Kong authorities have also provided additional background information on labour standards, customs procedures/rules of origin and border control. These papers can be made available to interested parties on request.
Further information will also be made available as appropriate in the course of domestic consultations to supplement this paper, or in response to specific requests.
All trade and economic statistics have been converted to New Zealand dollars, unless otherwise stated, using an MFAT trade database (in 2000, US$1 = NZ$ 2.20 and HK$1 = NZ$ 0.28). Trade statistics are frequently inconsistent across sources and countries and due allowance must be made for this. Data discrepancies are not usually significant, however, when the purpose is macro-economic analysis.
This discussion paper had been compiled with the assistance of a number of government departments whose input is gratefully acknowledged.
Hong Kong and New Zealand have expressed interest in negotiating a bilateral closer economic partnership (CEP) agreement, and have agreed on an Understanding (see Annex 2) that sets out general principles, objectives and elements on which a CEP might be based. The Understanding does not prejudge negotiated outcomes. Based on the analysis set out in this discussion paper, a CEP with Hong Kong raises the following broad policy issues:
Why Hong Kong? Hong Kong is New Zealand's seventh largest export destination with exports worth $772 million in 2000, equivalent to 2.76 percent of our total exports. Imports from Hong Kong were $171 million in 2000, equivalent to 0.56 percent of total imports. A CEP with Hong Kong would have a key objective of increasing bilateral trade flows and generating new employment opportunities in New Zealand through export led growth in the economy. It 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.
Regional and Global Advantages: By entering into a CEP with Hong Kong, New Zealand would be taking an important step to reinforce linkages to North Asia and to raise our profile as a business partner within the region. We would be signalling to Hong Kong and other trading partners in the region that we are an open economy that is easy to do business with, and which is keen to attract productive inwards investment. Like the CEP with Singapore, a CEP with Hong Kong would focus the attention of Hong Kong's commercial interests on New Zealand and would provide more open and secure access for New Zealand businesses wishing to operate in Hong Kong.
APEC Goals: 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 and 2020 for developing economies. A CEP with Hong Kong ahead of the APEC timetable would have a valuable demonstration effect within APEC.
Issues with Goods Trade: As Hong Kong currently maintains zero tariffs on all imports, there are no immediate commercial gains from tariff elimination for New Zealand. A CEP would however provide New Zealand with a commitment that our exports will continue to face zero tariffs on a permanent basis. A CEP would have implications for New Zealand's protected industries, including the textiles, clothing, and footwear (TCF) sectors. The challenge arises mainly from the possibility that non-Hong Kong origin goods may claim tariff preferences on the basis of a CEP with Hong Kong. Concerns over circumvention would need to be countered by the design and application of a robust rules of origin regime.
Non-Tariff Barriers: Trade gains can be made not only through the removal of tariffs, but by the reduction of non-tariff barriers. A CEP 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 regime). It would also promote greater bilateral consultation and transparency in areas such as business law and competition policy. Incorporating such concepts into a CEP with Hong Kong would make it easier for New Zealanders to do business there.
Services: A CEP with Hong Kong would offer more open and secure access to the Hong Kong market for New Zealand services exporters, as Hong Kong's current WTO commitments on services are limited in scope. Hong Kong is a major service trader, with a large international trade surplus. Both of New Zealand's major services sectors, tourism and education, can be expected to gain from closer linkages. A CEP on services would also provide a framework for pursuing full bilateral liberalisation of all services sectors.
Investment: Hong Kong is an important source of direct investment into New Zealand. This has been historically linked to business migrants, who have declined in numbers in recent years. A CEP with Hong Kong would act as a stimulus to encourage Hong Kong and other Asian investors to increase flows of productive new investment into New Zealand.
Trade and Labour and Trade and Environment: An examination of Hong Kong's labour laws shows that these are not dissimilar to New Zealand's. Although it does not apply a statutory minimum wage, its per capita income remains significantly higher than that of New Zealand. Hong Kong has also recently embarked on an intensive effort to improve its levels of environmental protection.
Exceptions: A CEP agreement with Hong Kong would need to include a range of standard exceptions based on GATT Article XX eg to protect human, animal or plant life or health. As in the CEP with Singapore, a provision would also need to be included 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.
Adjustment Costs: This will depend in large part on the final shape of the specific provisions on goods, services and investment to be negotiated in the CEP Agreement. Apart from the implications of tariff elimination for protected sectors, the adjustment costs involved for New Zealand, as with the NZ/Singapore CEP Agreement, would appear to be minimal. The programme of domestic consultations, initiated by the release of this discussion paper, will provide an opportunity for comment on these and related questions.
New Zealand is a small, export-oriented economy. The Government wants to promote international trade and open up markets for New Zealand. A closer economic partnership with Hong Kong can be expected to enhance the bilateral trade, economic and investment relationship between New Zealand and Hong Kong, and place it on a more open and secure footing. It would also encourage Hong Kong investors to look more favourably on New Zealand as a destination for productive inwards investment to support the Government's economic development objectives.
Hong Kong is not only an important market in its own right (our seventh largest), but is a key services and investment hub for the North Asia region. North Asia is an area of increasing focus and opportunity for New Zealand business. More secure and open access to the Hong Kong market will place New Zealand in an excellent strategic position to capitalise on, and exploit, new trade and investment opportunities in this region. Currently an estimated 10,100 jobs1 in New Zealand are dependent on our ability to export to Hong Kong.
Although formally part of China, Hong Kong is designated as a Special Administrative Region (SAR) with a high degree of autonomy with regard to economic (and most other) policies under the "one country, two systems" framework established by the Basic Law. This framework involves a 50 year commitment from 1997 to allow the SAR to maintain its existing free and open market system which has long been the hallmark of Hong Kong's dynamic economy.
Currently Hong Kong does not have any preferential trading arrangements. Like New Zealand, it is an active member both of the World Trade Organisation and of APEC. In respect of APEC, it has accepted the `Bogor' goal of free and open trade and investment in the APEC region by 2010 for developed economies and 2020 for developing economies.
A closer economic partnership with Hong Kong provides an opportunity to set high quality benchmarks on trade rules and to promote trade liberalisation within the APEC region. There are continuing uncertainties about the framework and scope of the next round of multilateral negotiations. The failure of Seattle has seen an increasing focus on bilateral and regional trading initiatives as a means of encouraging accelerated trade liberalisation including in the APEC region. While progress in the WTO will remain New Zealand's key trade policy objective, it is important that every effort is made to advance and secure our trade and economic interests in key markets.
In summary, a closer economic partnership with Hong Kong would:
