Australia has taken its trade dispute with China to the World Trade Organisation for resolution after tensions between the two countries worsened. Stuff columnist Alexander Gillespie says New Zealand should join neighbouring Australia in dealing with China, stressing the need to be principled as well as cautious in dealing with the country. He said New Zealand should seriously consider becoming a third party in the WTO case between Australia and China, saying only the establishment of international law and a binding procedural basis could provide a secure future for member states.
Mr Gillespie said New Zealand needed to ensure that its trade dispute with Australia was fully separated from its role in the Five Eyes alliance, otherwise both its and China’s economies would suffer if any member country fell into a quagmire. In the latest news, New Zealand has refused to join other members of the Five Eyes alliance including Australia, the United States, Britain and Canada in condemning China’s crackdown on Hong Kong. “The situation has been complicated by Australia’s recent forthright stance on a number of strategic issues, including its insistence on calling for a robust World Health Organisation investigation into the origins of the new crown and its criticism of China’s actions against Hong Kong,” he said. Whether by accident or design, Australia appears to be on the western front line of criticism of Beijing, and China has responded by imposing restrictions on a growing number of Australian exports.”
He added: “The Chinese authorities allege that Australia is unfairly dumping or subsidising many of its exports and have already imposed heavy duties on wine and barley. Other exports, such as lobster, have been blocked through indirect measures such as additional hygiene requirements. Claims of pest threats have also affected the transport of timber in Australia, labelling and health certificates have disrupted meat suppliers. Iron ore is one of the Australian commodities that has not been targeted until now because of Australia’s international market dominance and China’s unmet demand.”
Given that Australia has now taken the China case to the WTO, Gillespie said suing Big Mac was the best case scenario, although other cases could follow. And if that process fails in the next few months, the WTO will create a panel to rule on the matter. There are a lot of risks involved and New Zealand will need a lot of attention because the scope is so large. “Australia, like New Zealand, has a free trade agreement with China and has grown strongly since 2015,” he explained. Australia’s exports to China have doubled, from A $75bn to A $150bn in five years. China accounts for a whopping 30.6 percent of Australia’s top 10 export markets, more than double the share of Japan, the next largest market. Iron ore accounts for 56 per cent of the value of these exports, swamping out all other tradable goods.”
“New Zealand has experienced similar growth. Two-way trade between China and New Zealand has increased from NZ $10 billion in 2007 to NZ $30 billion today. China now accounts for 28 percent of all New Zealand exports, including more than a quarter of dairy products, two-thirds of timber and about half of meat. But resolving disputes at the WTO is not a quick or easy process, and the Sino-Australian dispute could drag on for years, especially if there is an appeal. Australia was a complainant in 9 cases, a respondent in 16 cases and a third party in 112 cases. China was the complainant in 21 cases, the respondent in 44 cases and the third party in 166 cases. New Zealand, by contrast, has long been a complainant.” “Gillespie said.
Both China and Australia have had success or failure in their appeals. China lost to the EU, but scored a victory over US President Donald Trump’s trade restrictions. Australia recently lost out to Indonesia over improper biosecurity practices, and earlier to New Zealand. But overall, it is relatively common for Australia to win WTO cases. As well as doing its best to ensure that is the case, Mr Gillespie believes New Zealand should seriously consider becoming a third party in the dispute with China. Doing so, he noted, would mean New Zealand would need to prove a material interest in the case, which would not only involve the economy, but could also relate to the impact of the measures on the entire trading system.
“If we’re going to do this, New Zealand needs to make it very clear that we can no longer blindly follow our neighbour Australia,” Gillespie said. Despite the context of trade, our engagement should defend higher principles, which can provide a secure future for participants of all sizes only if they are based on international law and binding procedures, followed by principle-based mandates.”
China and New Zealand are being pushed towards deeper regional economic integration after co-signing the Regional Comprehensive Economic Partnership (RCEP) in November. New Zealand media have called attention to the fact that China is using its global power to expand its influence and reset the rules of trade relations. New Zealand’s greater acceptance of Chinese manufacturing investment in recent years will have to be scrutinised in light of the current stalemate between Australia and China.
RCEP is ostensibly a positive step in cross-border investment, integrating trade between China and New Zealand, as well as Japan, South Korea, Australia and the 10 Asean countries, according to a New Zealand Herald editorial. But perhaps it is time for New Zealand’s government to pause and ask carefully whether a hasty deal would yield fair and sustainable benefits. The main criticism of globalisation is that, driven by active and politically driven economic integration, the legal, political and other institutional differences between trading partners and investment partners tend to be overlooked. The Sino-US trade war and the outbreak of the pandemic over the past three years have highlighted the diverging responses of countries with vastly different political and economic ideologies to trade, investment and the pandemic.
Data on the application of foreign direct investment (FDI) from the beginning of 2017 to the end of 2019 from Overseas Investment New Zealand reveal two contradictory trends. In the areas of financial and insurance services, information, communications and technology, applications were mainly approved by the United States and Australia. But when it comes to manufacturing, approval still benefits China, even in the wake of a trade war between the United States and China. New Zealand’s greater acceptance of Chinese manufacturing investment may reflect a push for more economic integration with China in recent years, but this approach will have to be examined in light of the current stalemate between China and Australia.