Aus and NZ – trade deal leapfrog

Prime Ministers John Key and Tony Abbott will be rightly satisfied with their APEC and G20 work after finalising long-delayed and much-needed trade deals with Korea and China respectively over the weekend.

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The two leaders have been following each other around on the summit circuit now for nearly two weeks, sharing the same novelty shirt line-ups and grip-and-grin photo ops with a succession of Asian leaders. They have even bumped into each other on re-fuelling stops in Darwin.

"This week of deal signing and pageantry, on both sides of the Tasman reinforces the Australasian future is Asian, rather than North American or European."

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But it is on trade where the two leaders and the two countries have been leapfrogging each other all over Asia, hammering out the last-minute deals between leaders on the fringes of these meetings. They both know better access for Australian and New Zealand commodity and services exports into North Asia is crucial for the collective Trans-Tasman economy in an Asian century.

New Zealand's Free Trade Agreement (FTA) with China in 2008, the first by a developed country, transformed New Zealand's economic prospects and helped insulate it from the worst of the Global Financial Crisis. China's share of New Zealand's exports of goods and services rose from less than 5 per cent in 2008 to almost 25 per cent now.

This week Abbott signed an FTA with China - Australia has been working for years to 'catch up' with New Zealand and sign its own FTA with China. The agreement includes access for Australia's dairy, beef and wine exports to China that would match the access in New Zealand's FTA.

Meanwhile, Key announced last week an FTA with Korea aimed at matching the one agreed with Australia in April.

"It’s a high quality deal," Key told reporters in Brisbane on the fringes of the G20 leaders meeting, where Key was invited by Abbott as a special guest.

"It was always going to be a tough negotiation, but we have got ourselves now back into a level playing field with those countries that compete heavily in the Korean market."

The deal needed to be done soon to ensure it could be lumped together with FTAs with Australia and Canada when progressing through a fractious Korean Parliament. The FTAs could lapse if they are not passed through Parliament by the end of this year.

Without the Korean deal, New Zealand's beef exporters in particular risked falling behind competition from America, Canada and Australia. New Zealand's beef export tariffs to Korea will be phased down from 40 per now to nil over 15 years. New Zealand's exporters currently pay $NZ229 million in duties on their exports to Korea and the FTA will reduce those by $NZ65 million in the first year alone. Businesses can see the detail of the deal in this MFAT factsheet.

But the biggest prize in the game of leap-frogging trade deals is the Trans Pacific Partnership (TPP), which both Australia and New Zealand have been pushing for, even though it is proving more complicated and fractious than originally hoped. It would prove a handy back-door entry for New Zealand into the United States.

Australia has had an FTA with the world's biggest economy for a decade but New Zealand has battled entrenched dairy interests and its own sometimes cool relationship with the United States through the late 1980s and 1990s over its nuclear-free stance.

However, the TPP, which would also drag Canada and Japan into a freer trading zone, may be even tougher to achieve than the FTAs with Korea and China. Agriculture lobbies in Japan and Canada are opposed to any softening of barriers to Australasian food exports and a rash of Parliaments will need to pass the deal, not to mention the US Congress.

By the time a TPP is done the relative sizes of the world's largest economies may have changed - in favour of the Trans-Tasman economies. China's economy, which is the engine for growth throughout North and South Asia, is already bigger than America's on a purchasing power parity basis. China is expected to overtake America in raw US dollar terms by 2019.

Which make Chinese President Xi Jingping's state visits to Australia and New Zealand this week and the now matching FTAs all the more important. He addressed a joint session of the Australian Federal Parliament and visited both Auckland and Wellington.

This week of deal signing and pageantry on both sides of the Tasman reinforces the Australasian future is Asian, rather than North American or European.

Feature photo: Pius Lee /

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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