Quotes of the Day

For New Zealand, a free trade agreement with China is a huge prize. The Asian behemoth is already the tiny nation's fourth largest trading partner. But while Chinese products enter New Zealand with relative ease, exporters to China face an obstacle course of tariffs, quotas, confusing rules and uncertain legal protections. China sells the Kiwis $NZ3.2 billion worth of goods each year, twice as much as it buys from them. An FTA would help close the trade gap and give New Zealand a well-placed stall in one of the world's fastest-growing markets. For Trade Minister Jim Sutton, China is the biggest game around: "There's no relationship more important for New Zealand in the 21st century." China's middle class - the size of 25 New Zealands and growing fast - is already hoovering up high-quality food, wool, timber and English-language tuition. But while an FTA is expected to pump up Kiwi exports to China by an extra $NZ260-400 million a year, it would boost Chinese exports to New Zealand by only a quarter as much. For China, the chief allure of a Kiwi FTA - the first it is negotiating with a developed country - is the signals it would send to bigger trading partners. A successful deal "would allow China to say to the world that it can deal with open market economies," says Prime Minister Helen Clark. It would also serve as a template for more complex deals to come. "The Chinese want to establish a model," says Charles Finny, the former head of New Zealand's China-FTA taskforce, "that will be respected and taken seriously by the rest of the world."

More importantly, an agreement would show that China looks after its friends. New Zealand was an early supporter of China's entry to the World Trade Organisation. And last June, as a precondition of FTA talks, it became the first developed nation to recognize China as a market economy. That status makes it harder for China's trading partners to accuse it of dumping, or selling goods at artificially low prices. Most nations withhold the accolade, saying China's failure to respect labor rights gives it an unfair advantage. When New Zealand broke ranks, Chinese officials were quick to express gratitude: "Our country greatly appreciates the move," said Commerce Minister Bo Xilai.

Next month, New Zealand and Chinese negotiators will meet in Auckland for the third round of FTA talks. "That will be the first time the really substantive issues get tackled," says Trade Ministry spokeswoman Cathie Bell. So far, she adds, "everyone seems to get on very well." But former trade diplomat Finny says the Kiwis "can expect tough negotiations. They're up against real professionals, highly sophisticated and very clever."

The Clark government faces an election this year, and an FTA would be an asset with voters. But the deal is too important to hurry, Finny says: "For a country like New Zealand, integrating with an economy as large as China's, there is a huge incentive to get it right." China, on the other hand, "isn't going to be giving things away easily." And in this game of diplomatic ping-pong, there's no doubt which player wields the bigger paddle.

• Elizabeth Keenan