KEY POINTS:
Trade Minister Phil Goff expects severe punishment for those criminally responsible for China's contaminated milk scandal - but he doesn't think Fonterra's representatives at San Lu should join the growing list of arrests made by Chinese authorities.
Fonterra has three directors who sit on the San Lu board and as arrests in the milk powder scandal multiplied yesterday, Mr Goff said it was "almost certain" the people who added the chemical melamine to milk would be executed.
"What they do in relation to the city authorities or San Lu is another question," he said. "It would seem to us to be particularly unfair if any action was taken against the company that had tried hard to get public recall made, but was frustrated in its efforts by people in the country that they were working with."
Mr Goff said that he had seen no suggestion yet that any action would be taken against Fonterra employees, but "of course you couldn't rule that out".
If something did happen, the Government would ensure the employees had access to legal advice and were being properly cared for if arrests were made.
Fonterra's involvement in the milk scandal as a 43 per cent owner of San Lu threatens to harm not only its reputation as a producer of safe food products, but also that of New Zealand.
The spotlight is now on Fonterra's bosses as questions are raised over whether they should have been more open about the milk powder health issue earlier.
Mr Goff said Fonterra's heads did everything "they thought they were able to do" when they were operating in the context of being a minority shareholder and governed by rules set by city authorities.
It appeared the city authorities had attempted to cover up the problem and the higher level Chinese central authorities were never alerted to it until the Government went directly to them in Beijing.
However, Mr Goff said Fonterra "could draw certain lessons" from the situation.
"They did their best, but they will still I think wish to reflect on this situation and say 'okay, how can we operate in future that we will not be caught in a dilemma like this?"'
The incident highlights the potential pitfalls New Zealand businesses face when they branch out into China, where the culture and rules are different.
After the signing of a free trade agreement with China earlier this year, New Zealand Trade and Enterprise conducted roadshows around the country promoting the merits of the agreement for local compan-ies.
But Mr Goff said NZTE was also making it absolutely clear that China was a different environment where businesspeople may have to deal with issues that were different to those at home.
The amount of time that New Zealand representatives took to respond to Fonterra's initial approach is also under the microscope.
According to Prime Minister Helen Clark, Fonterra first indicated to New Zealand's embassy in China on August 14 that it had some concerns about a product.
The company elaborated further around August 22, but it was not until August 31 - a total of 17 days after the first contact - that the embassy felt it had enough information to report to Wellington.
Mr Goff said he wasn't certain it took 17 days, but he emphasised that when a report was finalised on September 5, it was discussed days later at Cabinet level and New Zealand's ambassador was sent in immediately to talk to Chinese authorities in Beijing.
Asked if he was happy with the time it took for New Zealand officials to react, Mr Goff said it was not clear early on what the nature of the problem was and how widespread it was.
