Everything You Need To Know About The New Zealand-China Free Trade Agreement

In less than 12 years, trade between New Zealand and China quadrupled from US$5.76 billion in 2008 to over $23 billion in 2020. The dominating sector, worth over US$1.94 billion in fresh food products exported from New Zealand to China. At the same time, the exports from China to New Zealand include manufactured consumer goods with a total amount of US$9.36 billion. After upgrading the Free Trade Agreement (FTA) between the two parties in early 2021, we uncover what's next for them.

"The Upgrade Protocol is a specific action to practice multilateralism and build an open world economy, and an important measure to implement the FTA upgrading strategy"

- Wang Wentao, China's Commerce Minister, 2021

What is FTA?

New Zealand is China's largest trading partner, and the countries have decided to establish a bilateral free trading agreement in 2008. This made New Zealand the first country to have a trade agreement with China. The FTA helped both sides to export and import goods without paying fees, bringing benefits to both parties.

In January 2021, the two countries decided to upgrade their existing agreement, making New Zealand the first country to also upgrade the free trading agreement with China. The considerations include environmental safeguards, widening market access for services and trade, removing tariffs and reducing compliances for New Zealand exporters.

The upgrade seeks to modernise the agreement provisions to align with the latest trade policies and business practices. Besides, it virtually eliminates remaining tariffs and reduces compliance measures for exporters.

Key highlights of the agreement for both parties:

Due to China's rapid development since free trade was first implemented, it was essential that both countries revisit their import/export regulations.

Here are some highlights concluded from the agreement:

The immediate elimination of tariffs for over 97% of New Zealand's exports coming to China
Better access to Chinese quality products for New Zealand's businesses and consumers
Access to Chinese markets for New Zealand's service providers
Improved visa processing for business people entering China
Commitment to environmental considerations- the most ambitious environmental chapter. It promotes environmental protection and ensures that environmental standards are met. Specifically, those related to climate change, biodiversity protection, marine and oceans management, and the circular economy.
99% of New Zealand's three billion dollar wood and paper trade to China will have preferential access, with tariff elimination over a 10 year period
By January 2024, New Zealand will have the best access to China for dairy products of any country
The tourism sector has broadened as well: the Chinese Tour Guide category in the existing FTA has been changed to Chinese Tourism Specialist. It will make it easier for New Zealand businesses to employ suitable staff through the visa category. However, these regulations will come into power when global conditions rebound post-COVID-19.

Impact on the Leather Industry: Raw hides and skins

As New Zealand's Foreign Affairs and Trade reports, China is an active exporter of apparel to New Zealand. Because of the current upgrade on terms of the agreement, all the goods being exported from China to New Zealand are eligible for tariff-free access.

According to the RNZ, the escalated beef production caused an oversupply of raw hides and skins in 2019. And it made the cattle hide prices drop. Plus, the oversupply combined with the rise of convincing leather substitutes and a drop in luxury leather goods demands meant that global demand is very weak.

Having said that, the general manager of Wallace Group Tannery reported:

"In New Zealand, it's mainly a cow [hide] issue. The other types of hide ... they've all come back at prices, some have come back over 50 per cent, but it's really the cows that have dropped ... a lot of cowhides now are not worth processing".

OEC summarised the exports from China to New Zealand, and the clothing sector in 2019 makes up a total of almost 1 billion US dollars.

Export Implications: Leather Goods in New Zealand

Here are some reasons why manufacturing companies in China will benefit from exporting leather products to New Zealand:

Easy to Penetrate the Market

New visa regulations help manufacturers from China to smoothly penetrate New Zealand's market. As China is New Zealand's largest trading partner, the priority for visa arrangements is given to Chinese businesses.

Also, there is a demand for finished leather products.

Source: The Observatory of Economic Complexity

New Zealand actively exports raw hides and skins to other countries. However, the leather goods export is not as strong as in other countries. According to the statistics, China's leather shoe export to New Zealand constitutes almost US$658 thousand as of May 2021. Hence, there is substantial demand for leather goods in New Zealand that Chinese businesses.

Elimination of Tariffs

The biggest advantage of the new free trade agreement between China and New Zealand is the elimination of trade tariffs. Combined with lightened visa policies and the existing demand, the export of finished leather products with almost no tariffs proposes benefits to the Chinese leather industry.

What Should Manufacturers do?

Evaluate Your Business

Before taking any actions, evaluate your current state of business: summarise key highlights and necessary statistics. It is important to create an overview of your business and see if your strategic goals align with possible exporting. Plus, forecasting the supply rates in accordance to local demand and possible export demand is also a vital step.

Do Your Research.

The next step is to conduct thorough market research on leather demand in New Zealand, according to the goods you will be exporting. Select the area of export, evaluate the market size, competitors and demand rates. Refer to the agreement to find out more about tariffs for specific goods.

Find out about visa arrangements

As the procedure of outsourcing goods includes visa regulations, it is better to contact official organisations to follow up on any legal requirements needed for a successful export arrangement.

The upgrade of the free trade agreement between New Zealand and China once again proves the benefits of trading relations for both countries on a large scale. It is incredibly important for leather manufacturers in China to be open to the opportunity of outsourcing and bringing value to both Chinese and New Zealand's economies.