South Africa, having undergone dramatic reforms of its economy since the 1990s, is cautiously seeking to examine trade policy changes. But the reforming zeal has long gone. Meanwhile, regional free trade agreements (FTAs) continue apace, with a recent example being China and New Zealand signing a very comprehensive FTA in April 2008. This agreement should be of more than passing interest to South Africa.

This paper uses the pre-release Version 7 of the Global Trade Analysis Project (GTAP) model to assess the welfare and trade gains from the FTA as determined by merchandise goods’ access only. The results show that the considerable welfare gains to New Zealand of $478 million or 0.30 percent of Gross Domestic Product (GDP) demonstrate that a small economy can stand to gain from an FTA with a larger one, as the welfare gains to China are a lower $323 or an almost imperceptible 0.01 percent of GDP.

Scrutinising the output reveals that New Zealand’s gains largely come from the agricultural sector where almost complete duty-free access into China is traded off against the New Zealand manufacturing sector (and the clothing sector in particular). Enhanced agricultural exports to China are concentrated in vegetables and fruit and other agricultural products in primary agriculture, and beef/sheep meat, dairy products and ‘other foods’ in processed agriculture. These increased exports are about evenly split between ‘new’ exports or trade creation and ‘current’ exports or trade diversion away from other destinations.

Nearly 40 percent of the enhanced imports from China are in the textile, clothing and leather (footwear) sectors. Output in the New Zealand clothing sector reduces by 13.2 percent as a result of preferential Chinese access, and with the abolition of the TCF tariffs New Zealand will become an almost duty-free destination for global traders. Currently just over half of the total tariffs levied at the New Zealand border are from tariffs applied to TCF imports from China.

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