New Zealand looks to UK and EU to diversify market beyond China

New Zealand aims to agree free trade deals with the UK and EU this year in a bid to diversify its export markets amid rising tensions with China, the Pacific nation’s trade minister has said.

But Damien O’Connor insisted Wellington would continue to expand its trading relationship with Beijing despite “ructions” straining ties between its neighbour Australia and China.

“Any country engaged in commerce sees the value in having diversity of markets, particularly in a world that is increasingly challenged through disruption, climatic events, geopolitical events or whatever,” he told the Financial Times.

“Clearly, China for Australia is an important market as well. And while we are concerned about some of the ructions occurring, we’re just getting on and building on the areas of strength between our two nations.”

China is New Zealand’s largest trade partner, accounting for NZ$19bn (US$13.5bn) exports in the year to the end of March, a quarter of its total exports.

Wellington has managed to avoid the diplomatic disputes that have blighted Sino-Australian relations for more than a year, prompting Beijing to slap punitive tariffs on Australian wine and barley imports.

“We’ve always been straightforward in terms of our relationship [with China], which has been incredibly valuable,” said O’Connor, when asked how New Zealand had avoided this fate.

Wellington was the first developed country to sign a free trade deal with China in 2008, and in January it agreed to upgrade the pact to widen market access.

Nevertheless, Wellington has quietly stepped up efforts to diversify its trade relationships to reduce reliance on China.

As part of this process, O’Connor will meet Liz Truss, UK trade secretary, in London on Thursday to fast track negotiations on a free trade deal with the UK. He will later travel to Brussels to discuss an EU deal.

Truss has set her sights on New Zealand as the next target for a substantial post-Brexit trade deal. One Department for International Trade official described the talks as “the next big game in town”.

But UK officials cautioned that progress would depend on O’Connor’s meeting with Truss. “The New Zealanders will have to give us more on investment, mobility and services if they want a deal. They’ve been slow to move on those issues so far,” a senior Whitehall official said.

O’Connor said a New Zealand-UK deal would probably be similar to the UK-Australia trade agreement, which was agreed in principle this week. Tariff cuts on New Zealand farm exports including dairy, lamb and beef would be among Wellington’s demands, he said.

He added that British farmers should not fear New Zealand imports. Most of its agricultural products were destined for Asia, the US and other markets while the volume available for the UK and EU was small. New Zealand produce, however, could play a role in meeting off-season demand, he said.

Analysts said Wellington’s efforts to diversify its trade partners may help shield its economy in the event of a breakdown in relations with Beijing, even if there was little economic rationale to do so at present.

“Diversification is always a question of protecting yourself against risk,” said Rob Scollay, associate professor at the University of Auckland. “But I’m not sure, absent some kind of political meltdown, there is any strong reason to diversify away from China.”

New Zealand has been criticised by Australian politicians, analysts and media over what they view as its cosy relationship with Beijing, which has been accused of trampling human rights in Hong Kong and Xinjiang.

Wellington has resisted expanding the remit of the Five Eyes intelligence alliance, a network that includes Australia, the UK, Canada and the US.

Last month, 60 Minutes broadcast a documentary titled Dollars vs Decency: Is China Taking Over New Zealand? that criticised O’Connor for saying Australia needed to “follow us and show respect” to Beijing.

“Probably in hindsight I shouldn’t have said it that way,” said O’Connor, adding he maintained a positive relationship with his Australian counterpart.

He also denied that Wellington had gone soft on China. “We speak out when necessary and we continue to build the trade opportunities where there is value for both supplier and customer.”

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