We had understood from various sources that the main sticking point was the "rules of origin" – the definition of what is allowed to be called "made in Hong Kong". That is crucial because of Hong Kong’s role in organising international production. A huge percentage of its exports are "re-exports" – that is, simply imported and immediately re-exported to China and elsewhere for further processing; or imported from China for re-sale to final markets. We have previously documented the degree of fraud that occurs in relabelling such goods. New Zealand’s remaining textile, clothing and footwear industry would not survive imports of these goods (see previous Watchdogs", and the CAFCA and ARENA web sites, www.cafca.org.nz and www.arena.org.nz).

We now have some good news to report. On 18 March 2002, the Minister of Trade Negotiations, Jim Sutton released a press statement titled "Ball in Hong Kong Government’s court". It began:

"New Zealand has told Hong Kong that it cannot accept a trade agreement with unenforceable rules of origin, Trade Negotiations Minister Jim Sutton said today. Mr Sutton met Hong Kong Trade Secretary Brian Chau on Friday night (New Zealand time) while in transit in Hong Kong returning from a trade mission in China. Mr Sutton briefed Cabinet colleagues on the discussion this morning. ‘I put it to the Hong Kong minister that New Zealand could not agree to rules of origin that were not enforceable. This means that final stage of manufacture would have to be carried out in Hong Kong and exported directly to New Zealand. Alternatively, final stage processes could be carried out in New Zealand. Mr Chau clearly understands New Zealand’s position and will be consulting with his industry that wish to have some minor finishing processes carried out in a third country.’ Mr Sutton said the Hong Kong government would now have to consider its position. There is no set timeframe for that".

The National Business Review interpreted this to mean that "a free trade agreement with Hong Kong is likely to founder because New Zealand cannot accept agree to unenforceable rules of origin". A spokesperson for Sutton admitted that the negotiations were "thrashing about in a coma … in suspended animation".

The Council of Trade Unions also released a statement (18/3/02) welcoming the signs that the Government was standing firm on this issue, but noting that "in addition, the CTU has been seeking recognition in a side agreement with Hong Kong that would include enforcement of labour standards, such as no child labour or forced labour and respect for basic union rights. Paul Goulter said that there has been no progress on this agreement, largely because of the intrinsic connection with China".

We can modestly celebrate a significant sign of progress and claim some responsibility.

We would be delighted if the negotiations do not awake from their comatose state. There is much more in them that is more dangerous than the rules of origin, important as they are. Further liberalisation of services, Government procurement and investment would undermine New Zealand’s options for reviving economic development, and improving our social and natural environment.

The Government should take this opportunity to review its support for agreements such as this, and consider their costs in further commercialisation of our essential services, exposing New Zealand to financial crises like those in Asia in 1997, and loss of options for New Zealand’s future development.