From Our Blog
Of mountains and molehills
I’ve said it before and I’ll say it again – especially in the current political climate in New Zealand – public debate about trade policy is important. This website was established to provide a means of explaining the importance of trade from a business perspective. We try to be as clear as we can about the benefits of trade without minimising any downside risks. We respect the right of others to make their views known but we do not refrain from robust debate or from taking issue with others’ views when we believe they are lacking in substance.
The latest in the war of words about the Trans Pacific Partnership (TPP) concerns “certification”. The claim is that draft US Trade Promotion Authority (TPA) provides a means to undermine the negotiating process by requiring partners to agree in advance to US negotiating objectives. This is because TPA would require the Administration, before TPP commitments enter into force, to “certify” to Congress that the other party has done everything necessary to bring its laws and regulations into conformity with the agreement. A website has been established (www.tppnocertification.org) which reveals all. (Incidentally, unlike TradeWorks, the ownership of this website is not fully disclosed). The website, and accompanying media commentary, claim that the US Trade Representative’s office worked in this way to amend laws in Peru which were contrary to Peru’s national interest and took further what had been agreed in the negotiation. There are the usual leaks of emails, which purport to back up this allegation.
It’s hard to accept these claims. The shared responsibility for trade policy in the US requires the Administration to negotiate treaties and the Congress to regulate commerce. Hence the need for TPA, which seeks to ensure that negotiated treaties cannot be undone in the ratification process. It is the absence of TPA, which overhangs the negotiation at present and, some would argue, hinders the US in securing an ambitious outcome. As Congress maintains oversight of trade policy it is necessary to provide a formal mechanism whereby the Administration, through USTR, confirms to Congress that the matters requiring action arising from the concluded treaty have been concluded so the treaty can enter into effect in the US. That’s in effect what “certification” is. It comes after the negotiation and ratification process, not before. It is about ensuring that undertakings given in the negotiation are in fact being met.
Each negotiating party in TPP has their own legislative processes to follow. The MFAT website confirms that the Government has the power to ratify treaties after they have been signed and after consultation with Parliament. Ratification can occur only once any laws requiring amendment by Parliament are duly voted. “The Government then completes the treaty making process by depositing the appropriate formal instrument with the treaty depositary”. The treaty does not come into force until other parties have completed the ratification process. TPP will specify how many parties (some or all) will need to ratify before the agreement enters into force.
As regards the “help” the US might give to other parties during the ratification process, this probably has to do with the lack of capacity in some economies to attend to the required legal processes. We can’t imagine New Zealand accepting such help from the US or any other economy.
It is interesting to reflect on why those opposed to TPP have chosen to focus on such an innocuous aspect of TPA, apart from the fact that it speaks to the theory that TPP is an underhand conspiracy to undermine economic sovereignty. We’ve heard that argument before. In a climate where TPP is grinding on without conclusion, it’s out of such molehills that mountains can be made, and frequently are.
This post was written by Stephen Jacobi. Henceforth it will be the practice on TradeWorks to identify the author of our blog. Information on the New Zealand treating making process can be found at http://mfat.govt.nz/Treaties-and-International-Law/03-Treaty-making-process/index.php
Are the times changing ?
It's sometimes assumed that nothing much changes with trade but a powerful new animation from NZTE and MFAT illustrates the changes in New Zealand’s export profile in the period since 1983 when we signed CER with Australia. Check it out here. The rise of China and developing economies is made clear as their growth picked up and we secured new bridgeheads through the FTAs we successfully negotiated. The rise of ASEAN, the comparative decline of the United States and Japan, the continuing significance of Australia and the prospective importance of India are pretty plain to see. Congratulations to all those at NZTE and MFAT who made this presentation available – we need more of this to build public understanding and support for change.
These changes are very much behind the moves to establish the Trans Pacific Partnership (TPP). At stake is the degree to which New Zealand is able to integrate in the wider Asia Pacific region and the rules, which are going to govern trade and investment in the future. TPP is making agonisingly slow progress. In recent weeks another meeting of Chief Negotiators has come and gone. Negotiators continue to chip away at differences on a range of issues. President Obama has even suggested a deal could be done by November. We’ve heard that before. It’s hard to see much progress can be made before the Congressional mid-term election on 2 November or before a new Congress has granted the President a Trade Promotion Authority (TPA). In New Zealand some are now suggesting that New Zealand should quit TPP if, as may well prove likely, the United States and Japan find they cannot commit to eliminate all tariffs including on products of most interest to us.
That would be a big call. The NZTE animation shows that our future lies clearly in the Asia Pacific and the role that can be played by FTAs in building business growth. TPP has never been a blank cheque. It can work in New Zealand’s interest only if it leads to new business opportunities. An agreement, which offered little in the way of new market access and new business, would be of little advantage. On the other hand an agreement, which offered commercially meaningful market access would need to be considered seriously. The substance of the agreement needs to guide our negotiating strategy. TPP is taking too long but even as negotiations drag on, possibly into 2015, other nations including even China are showing renewed interest. That’s because integration and inter-dependence, fuelled by the development of regional and global value chains, are the drivers of future trade and investment. In such a dynamic environment New Zealand needs to way up very carefully the strategic choices it has to make.
- Stephen Jacobi, Executive Director, NZ International Business Forum (www.nzibf.co.nz).
TPP High On Agenda for PM's Visit to Washington
Prime Minister Key leaves for Washington this week. He needs to take with him a strong message on TPP – the deal can be finished only if there is an ambitious outcome on the table and only if all share equally in the benefits. There is no room for dodgy bilateral deals on the side of TPP.
The Prime Minister’s visit takes place as reports abound of the imminent demise of TPP. Such reports are greatly exaggerated. While some momentum has certainly been lost in recent months, TPP is still very much a “live” negotiation and economies are re-engaging in a flurry of bilateral consultations in advance of another Lead Negotiators’ gathering in July.
A quick and dirty end to the negotiation serves no-one’s interest, especially not New Zealand’s as we push for a high quality, ambitious and comprehensive outcome, one that advances our market access needs in Japan, the United States, Canada and Mexico. The recent Australia-Japan FTA has set a low benchmark for tariff elimination in products of interest to New Zealand like beef and dairy products – this cannot be accepted as a basis for TPP. If, as some are suggesting, the United States has conceded to Japan that TPP might not be fully comprehensive, then as Trade Minister Groser has suggested, these two need to demonstrate how the goal of a high quality agreement can be reached. The US and Japan also need to be unequivocal that benefits of tariff elimination in TPP will apply to all parties. It is only on this basis that others can reasonably be expected to participate in the wider rule-making process.
At the same time New Zealand needs to pay close attention to those new trade rules – they need to be made in a way which meets the needs of our economy in terms of encouraging investment, promoting innovation, fostering competition, reducing costs and improving the ease and speed of doing business. New Zealand has interests beyond market access even if tariffs on agricultural products are the most visible benefits from a successful TPP. Getting this right – and in a way that avoids unintended consequences - takes time.
TPP Mountain Worth Climbing
Trade Ministers from the 12 TPP negotiating economies are meeting in Singapore 19-20 May. Expectations from the meeting are not high. The meeting is being described as a “check in” and an opportunity for the United States and Japan to debrief on the outcome of their bilateral negotiations at the time of President Obama’s visit to Tokyo last month. We are not holding our breath – there is still more water to flow in the deep river that is TPP, but progress continues to be made. Even so it is timely to reflect on the importance of TPP for New Zealand’s agricultural industries. In a recent article in New Zealand Farmers’ Weekly meat industry leader Sir Graeme Harrison, who also serves as the Chairman of the New Zealand International Business Forum had this to say:
New Zealand’s merchandise exports are 70 percent land based. While export dependency ranges from 80 percent for beef to 96 percent of dairy production, never before has the agri-sector had such a diversity of major markets. Yet prior to the conclusion of the Uruguay Round in 1994, agriculture had been set apart from the global trade liberalisation process enjoyed by industrial goods and New Zealand had endured at least two very tough decades as our economic fortunes were impaired by the excesses of the European Common Agricultural Policy and the contradictions of US and Japanese trade policies.
After so much pain the multilateral Uruguay Round concluded 20 years ago has enabled New Zealand to operate in a global market where European Union (EU) export subsidies on dairy and beef exports have been capped, annual quota volumes for sheepmeat to the EU and beef to the US and Canada have been certain, and tariffs have replaced quotas on a number of products. Such changes, for example, enabled New Zealand to rapidly grow chilled lamb exports.
Bilateral agreements have followed, with the New Zealand/China FTA the most transformational. Our terms of trade have dramatically improved, with the price of exports now exceeding imports. At long last we have access to consumers paying more for what we produce best.
Yet the contradictions of US and Japanese agricultural trade policy persist. My Masters degree thesis was on the very subject of US trade policy and its impact on New Zealand agricultural exports. I submitted it 42 years ago and have subsequently spent over 30 years doing business in Japan, establishing the first foreign owned meat import and distribution company of scale in that country. I can say unequivocally that in all my years of business contact and investments in these two hugely important markets for New Zealand, never have we been closer to getting ground breaking market access changes made possible by the TPP negotiating process.
Let’s hope Sir Graeme is right !
Obama in Japan – he came, he saw but did he conquer?
The verdict on President Obama’s visit to Japan 23-25 April is still out. Touted as a chance to bring new momentum to the seemingly never-endingTrans Pacific Partnership (TPP) negotiations, the White House immediately claimed a major breakthrough while the Japanese said nothing had been achieved (apart that is from some comforting talk about Japan’s security and a great sushi dinner).
Niceties aside it was clear some hard-working officials put in a lot of hours around this visit. TPP negotiators met around the clock right up to and even during POTUS’ time on the ground. Comments from American officials suggested that the work focused on the five sensitive (in Japanese “sanctuary”) areas of rice, beef, pork, dairy and sugar which are holding up conclusion of a bilateral market access deal as an important piece of the TPP end game. A lot of work was apparently done on the highly complex Japanese tariff to work out the scope of a future package.
A generous interpretation is that this is all good stuff, and necessary for a future deal to be reached. It suggests that the US and Japan are getting down to brass tacks and working out where the scope for compromise might lie. A less generous interpretation is that the compromise might imply a lessening of ambition. On the heels of an under-achieving Australia FTA, which set a low benchmark for tariff elimination, Japanese negotiators may have succeeded in identifying if not whole sectors, then some product lines within sectors, that might not be subject to TPP’s liberalizing force. American negotiators may have been successful in ratcheting up the Australian outcome in specific areas of interest to them.
All of this is pure conjecture because no-one is saying much publicly. This is a negotiation after all that is still in full swing. The Japanese press is reporting understandings that the beef tariff may be reduced over time to 9 percent – not exactly zero but well done from the 38.5 percent currently applying and better than the 18 percent the Aussies achieved. Dairy tariffs may also be reduced through specific tariff quotas.
The big unknown at present is how these arrangements might be passed onto other suppliers including New Zealand. TPP is meant to contain a “single market access schedule” implying that all agreements reached bilaterally are then applied to others. But neither the Americans nor the Japanese have been entirely clear about this since this alternate track bilateral process was established to get Japan over the line on TPP membership.
TPP Chief Negotiators, meeting in Ho Chi Minh City 14-15 May need to be clear on this point: TPP is a plurilateral agreement amongst twelve members not a series of bilateral deals stapled together. That's the only way to address the “noodle bowl” of overlapping and sometimes conflicting agreements and build “high quality, ambitious and comprehensive” agreement fit for the 21st century.
Welcome to the TPP negotiators.
New Zealand has been a key player in the Trans Pacific Partnership agreement. Given the potential benefits of TPP for New Zealand in terms of economic growth and job creation, it is good to see that negotiations are being held in Auckland between 3 to 12 December. As such, the representatives of some major New Zealand businesses and business organisations have written to Government endorsing its current approach to TPP negotiations. They note that there are complicated public policy issues involved in negotiating such an agreement, and that solutions need to be sought that are in New Zealand's overall interests. They also welcome the hard working negotiators.