ADDRESS TO JAPAN NZ BUSINESS COUNCIL
AUCKLAND, 23 APRIL 2018
STEPHEN JACOBI, EXECUTIVE DIRECTOR
NEW ZEALAND INTERNATIONAL BUSINESS FORUM
CPTPP – SIX WAYS AND MORE TO HELP TRADE WITH JAPAN
It’s great to be here and thank you to my good friend and former Ambassador to Japan Ian Kennedy for the invitation.
CPTPP – that’s the Comprehensive and Progressive Agreement on Trans Pacific Partnership – is a mouthful of an opportunity and one which has the potential to transform New Zealand’s trade and economic relationship with Japan.
This evening I’d like to cover three things:
- first, I’d like to talk about the importance of CPTPP in the context of the relationship
- then, a closer look at what’s in CPTPP for exporters and those doing business with Japan
- and lastly, I’d like to suggest what the Business Council and its members need to be doing now to prepare to realise the CPTPP opportunity.
I’m speaking on behalf of the NZ International Business Forum – our Tradeworks campaign seeks to explain trade and the opportunities to New Zealanders – please sign up to our website www.tradeworks.org.nz and follow us on Facebook, Twitter, LinkedIn and Youtube.
The International Business which has for the last decade taken a close interest in Japan through the Japan NZ Partnership Forum and regular visits to Tokyo to build alliances with likeminded business organisations.
That work has now paid a dividend with the signing of CPTPP and the advent of a free trade relationship with Japan.
Japan and New Zealand – the “ondosa” factor
I come before you tonight as a true believer – a believer both in the value of trade and of the importance of the trade and economic relationship with Japan.
Situated at opposite ends of the great Pacific Ocean, and vastly different in terms of size and scale, New Zealand and Japan have highly complementary economies.
The Japan NZ Business Council has played a significant role over decades to build the relationship and today we see the results of sizeable trade flows and many examples of successful, productive Japanese investment in New Zealand.
Yet there is a feeling that the relationship has not reached its full potential.
Some years ago now Ian Kennedy and I were meeting in Tokyo with a distinguished member of the Japanese business community.
Reflecting on the state of the relationship our Japanese friend explained that there was a problem with the “ondosa”.
The linguists amongst us will know that “ondosa” literally means difference in temperature.
At one level our friend seemed to be telling us that the temperature of New Zealand’s relationship with Japan neither rises nor falls but mostly stays the same.
At another level, the meaning of ondosa is a little more complex.
It refers to agreement between two sides in broad principle, but with some difference in the degree of enthusiasm, interest, or commitment remaining.
This, ladies and gentlemen, is the ondosa factor in the Japan/New Zealand trade and economic relationship.
The ondosa in the relationship has over time remained fairly constant, and while this might seem a good thing, it has also given rise to a certain comfort level with the way things are, even if there is some underlying degree of dissatisfaction.
In the case of Japan and New Zealand there are things that need to be changed.
In Japan, high tariffs applied to agri-food products and persisting non-tariff barriers are things New Zealand exporters would like to see addressed.
In New Zealand, Japanese businesses would like to level the playing field with others like China, ASEAN, Korea and Taiwan who enjoy better market access and investment conditions as a result of the FTAs we have concluded with those countries.
Japan is the only major partner for New Zealand in Asia with whom we do not have an FTA: the good news is that with CPTPP this is about to change!
It should be acknowledged too that when Japan joined TPP it changed the nature of the negotiation, expanding the size of the enterprise and making it a much more viable pathway for wider integration in the Asia Pacific region.
When the United States unfortunately decided to leave TPP, it was Japan, along with Australia and New Zealand, which stepped up and continued to make the case for a viable partnership between the eleven remaining members.
This was the basis on which CPTPP was built, suspending 22 provisions from the earlier TPP, and which is now being taken forward for ratification by the members.
Japan’s Cabinet Secretary Suga has described CPTPP as “glasswork” – a very delicate consensus that needs careful handling as it is taken to the next stage.
What’s CPTPP got to do with it?
The next stage is the opportunity CPTPP gives to address the “ondosa” factor and change things for the better between New Zealand and Japan.
CPTPP does this in at least six important ways.
First, CPTPP cuts tariffs and improves market access, especially in the four economies with which we do not already have free trade arrangements –Japan as well as Canada, Mexico and Peru (taken together that’s over $4 billion of trade in goods, – $3billion for Japan – and over $1 billion trade in services – just under $900 million for Japan).
Over time tariffs are reduced or eliminated on New Zealand’s key exports to Japan including dairy, meat, horticulture, wood, wine, seafood, manufactured products like agricultural machinery and medical devices.
You can find the detail related to your products by using MFAT’s tariff finder at https://tariff-finder.fta.govt.nz.
In the case of beef, the tariff is reduced from 38.5% currently to 9% over sixteen years – levelling the playing field for New Zealand with Australia in Japan.
While safeguards may continue to apply, under CPTPP Japan will be prevented from raising a WTO safeguard against our exports as it did in August 2017 when the applied tariff rose to 50%.
In the case of dairy some high tariffs will continue but there are reductions in some areas of interest.
Products like butter and milk powder will be subject to relatively limited quotas even at the end of the transition period.
But products such as proteins, ice cream and infant formula will mostly enjoy tariff free access to Japan by the end of the varied transition periods in the agreement.
In Japan, around $217 million worth of trade in New Zealand’s high-protein products will be duty-free as soon as the CPTPP comes into force.
Horticulture is also a big winner – for kiwifruit, where Zespri currently pays $26 million in tariffs each year, tariffs will be eliminated on entry into force.
Duty-free access for apples is gained in eleven years.
Second, CPTPP includes disciplines to address non-tariff barriers, which raise the costs of doing business with Japan
Identifying and addressing NTBs is never easy, but CPTPP helps this process by providing ways to limit the impact of technical barriers to trade like rules, regulations and standards and promoting sound regulatory practices.
Much of this draws on practices and experience we have become used to in CER and APEC.
MFAT has established a new web portal for companies reporting specific problems to have these investigated and addressed – check this out at https://tradebarriers.govt.nz – it’s a great new resource for exporters.
Third, CPTPP addresses not just goods but services– a range of measures to open services markets and are designed to assist our services exporters in sectors like consultancy, education and information technology.
Services are distinct from goods – they have been described as anything you can’t drop on your foot – but they represent an increasingly important part of international trade and are often directly connected with the export of goods.
CPTPP provides for better conditions for services trade including the right to establish operations in other markets, to obtain visas to visit the market and to engage in cross border e-commerce.
For those of you look to add value in smart, innovative, knowledge-heavy sectors such as consultancy, technical services, transport, logistics, distribution or computer services and IT, CPTPP should generate some great new opportunities in Japan and other CPTPP markets.
Fourth, CPTPP includes the first-ever commitments in a trade agreement to promote an open digital economy.
E-commerce and digitally-provided services have meant that businesses large and small can engage across borders in a way that could not have been imagined even a decade ago.
Even the smallest firms can connect directly, immediately and at low cost with any number of customers offshore.
Restrictions on cross-border data flows, expensive Customs processing for the small shipments that are typical with e-commerce, and restrictive rules on e-payments, can all undermine the benefits of digital transformation.
CPTPP puts in place new rules to ensure that the lifeblood of the digital economy – data flows – continue to circulate freely subject to reasonable safeguards for privacy and consumer protection.
CPTPP requires governments to secure the necessary tools for trade in the digital environment by enabling e-payments and allowing express delivery services.
CPTPP prevents governments from requiring firms to store customer details in local data centres, so-called ‘forced data localisation’; it prohibits customs duties on electronic transmissions.
All of this is aimed at ensuring businesses can sell services and goods to customers around the world without needing to invest in local infrastructure or rely on expensive or insecure payment systems.
Fifth, CPTPP contains specific commitments designed to make it easier for SMEs to do business in the region.
One of the major impediments that SMEs often identify is a lack of information about markets and trade requirements.
CPTPP governments have agreed to set up websites containing information about all aspects of the agreement – whether SMEs are looking for tariff rates, or Customs regulations or procedures, or information about technical standards or regulatory requirements, or relevant business, tax or employment regulations.
A working group will meet regularly to share experiences on best practice to support SME exporters, to identify ways to assist SMEs to take advantage of the new commercial opportunities generated by the agreement, and to develop capacity-building programmes, training and other forms of assistance, for example around trade financing.
All of this should help to mean that, where the other chapters of CPTPP open the door for SMEs to trade, it is also enabling those smaller firms to walk through that door with confidence.
Sixth, the beauty of CPTPP is that it sets up a framework of rules designed to strip out exactly those trade costs and other hurdles that make life so difficult for exporters in the international arena.
Those rules take in all aspects of doing business, including, for example, the right to sell into government procurement in CPTPP economies, as well as the need to promote good environmental practices and decent labour standards.
CPTPP is about creating the best possible conditions for modern models of business and trade, such as so-called “global value chains”.
In a global value chain, production is fragmented across multiple markets, using inputs of goods and services from a range of different countries, sourced from large and small firms, before the finished output gets to the final consumer.
Many New Zealand companies report that they mostly sell goods or services for use by other businesses in those global value chains, rather than directly to end consumers.
Japanese companies are world-leaders in establishing such value chains around the world.
The GVC-friendly elements of the CPTPP include new rules that try to smooth out Customs procedures, facilitate goods trade, and provide frameworks for developing consistent, evidence-based technical rules, biosecurity and food safety measures.
All of these new rules will help to reduce further the costs of doing business and address non-tariff barriers, in whichever sector our companies may be operating.
So what do we do now?
I’ve outlined six ways in which CPTPP could work to assist New Zealand exporters to Japan and many of them will help Japanese exporters to New Zealand also.
This will not happen by magic.
CPTPP still needs ratified and there are things we can do collectively to get ready.
First, be informed.
Check out MFAT website (www.mfat.org.nz); there are seminars taking place around the country on a regular basis– watch out for those.
This Business Council has been proactive in organising tonight’s discussion – thought needs to turn to taking the message out more widely and to engaging actively with MFAT, NZTE, MBIE and other agencies.
The Business Council might consider sponsoring a publication or web materials, which focus specifically on the CPTPP outcome related to Japan, picking up some of the things I have mentioned this evening.
Work in clusters to figure out the change CPTPP could make to your sector.
Review your strategic plan and business plan, particularly from the perspective of how you can link more closely to global value chains.
The Business Council will already be thinking about how to structure the discussions at the annual joint meeting in November – these discussions will take on a new relevance now CPTPP is in hand.
The ratification process in New Zealand has already started – the NZIBF submission to the Parliamentary Select Committee is available on our website.
There will inevitably be a public debate about the benefits of the agreement at the time CPTPP is discussed in Parliament – the Business Council might want to ensure its voice is heard in this debate.
Engage with officials when it comes to the implementation of this agreement, and the negotiation of others in the pipeline – they need real-word stories of challenges, problems and successes in offshore markets.
Report the problems you are facing in Japan and offshore markets.
Only business knows how business is done; only business owners and operators know the challenges they face.
I am certainly hopeful that the Business Council might become an effective conduit for more effective sharing of information between officials and those doing business in Japan.
I said at the beginning: CPTPP has the power to transform the economic and trade relationship with Japan.
CPTPP has been conceived with business in mind and its success for New Zealand will ultimately depend on business making use of those six benefits I have outlined.
All of us in this room are convinced that the relationship with Japan brings significant benefits to both sides.
With CPTPP, the time is now to address the ondosa factor, to be more ambitious about the relationship and to build new business ventures and strategic alliances with our Japanese friends that will take this important relationship to a new level.