From Our Blog
Korea FTA done, now on to TPP
The signing of New Zealand’s FTA with Korea is another “brick in the wall” for New Zealand’s FTA coverage in Asia. Now only Japan and India are missing. But that analogy is not quite right – FTAs are meant to break down walls aren’t they? The agreement with Korea largely does this over time but the end result is not as ambitious as other FTAs we have signed. That’s because our Korean friends proved extremely reluctant to open their market completely. They accepted however that they needed to ensure that New Zealand was not disadvantaged in the Korean market compared to competitors like Australia and Chile who have already secured FTAs. That means that the deal gets a pass mark in terms of major exports beef and kiwifruit and dairy (including milk powder, where a small tariff rate quota was granted). Some useful new access was achieved in wine, mussels, salmon and squash. Even so the deal disappointed in a few areas (two lines of processed wood, frozen deer velvet, squid and some horticulture products). Hopefully we will have another crack at Korean protectionism when Korea seeks to join TPP – that’s if TPP can be concluded satisfactorily. From Washington this week Minister Groser was reported as warning that the stand-off in Congress over Trade Promotion Authority (TPA) risked turning TPP into another Doha. In an interview with Inside US Trade he said that the US, Japan and Canada had so far not made “serious offers” to New Zealand on dairy products and this also risked slowing down the process. TPP has been from the beginning promoted as an “ambitious, high quality and comprehensive” deal. It’s good to see the Minister calling others to account on this. The Korea FTA meets expectations in terms of leveling the playing field in Korea and not creating unhelpful precedents in advance of TPP. As such Minister Groser and his officials deserve congratulations for another step forward in creating a more favourable environment for business in the Asia Pacific region.
This post was written by Stephen Jacobi, Executive Director of the NZ International Business Forum www.nzibf.co.nz
TPP Investor state - keeping governments honest
Those concerned about investor rights in trade agreements might well reflect on the appropriateness of the New Zealand Super Fund seeking to sue the Government of Portugal about retrospective regulations it has made to protect the interests of a government-owned bank.
Of course this is not the same as investor-state dispute settlement (ISDS) through UN-mandated arbitration as is provided for already in New Zealand’s FTAs with China, ASEAN and Korea and is proposed in TPP. The Super Fund is seeking redress through domestic courts, as a major Japanese corporation did recently (unsuccessfully) in respect of New Zealand’s earthquake compensation legislation. In the case of Portugal and New Zealand it is to be hoped that the courts in question will decide impartially and without undue influence of governments. Such independence of the judiciary is not always the case especially in developing countries which are often out to attract foreign investors. That is why ISDS is important, particularly in an age where trade is giving way to investment – not unduly to restrict government actions but to ensure compensation to foreign companies is made available when governments expropriate property rights.
The question remains whether sovereign governments should be able to be sued at all? Surely the answer is yes. In fact principles of independent arbitration and compensation are not all that foreign to many jurisdictions, including here in New Zealand.
As it is, New Zealand’s existing FTAs and we expect TPP also have safeguards to lessen the risk of adventuresome litigation and to prevent the ‘freezing out’ of government action. No government should be prevented from taking action to protect public health, the environment or in New Zealand’s case, the Treaty of Waitangi. The grounds under which ISDS can be taken need to be carefully prescribed and negotiators need to be very aware of the risks to legitimate government policy making in this area.
Those opposed to TPP claim ISDS provides “for foreign investors to sue our government in overseas tribunals if their profits are cut by legitimate government actions”. No New Zealand Government would be foolish enough to sign up to something so ill-defined and open-ended, without necessary protections. Meantime go ask the Super Fund if the Government of Portugal can be trusted at all times to do the right thing by foreign investors.
This post has been written by Stephen Jacobi, Executive Director of the New Zealand International Business Forum (www.nzibf.co.nz)
Thank you Mr President - but no one country makes trade rules
In his 2015 State of the Union address President Obama has at last thrown the weight of his office behind the trade agenda in asking Congress to grant him Trade Promotion Authority (TPA). This is seen as an essential pre-condition to the conclusion of TPP, but it is not sufficient in itself. In his speech the President suggested that America rather than China should write the trade rules. He can perhaps be forgiven in the US political environment for overlooking the fact that neither America nor China on their own can write trade rules. The stand-off in the WTO Doha Development Agenda is clear evidence of that! Rather trade rules need to be written collectively in the course of a negotiation. If this sort of argument helps folks in the US to pick up the pen and join the writing effort then great. US negotiators, and everyone else, need the assurance that Congress in the ratification process won’t unpick what has been agreed – that’s a consequence of the shared responsibility for trade in the US Constitution. But TPA however useful doesn’t conclude negotiations. Only negotiators can do that on the basis of a deal which is acceptable to all.
On TPP, the conventional thinking is that if TPA can be secured, this will strengthen the hand of the US in convincing Japan to show greater flexibility in agriculture, which would boost its productivity in other areas. Other participants would then be able to be drawn in, knowing that the US and Japan are prepared to deal on market access. That leaves finishing (but important) touches to other controversial areas including intellectual property, investment, state owned enterprises and environment.
With strong leadership from the White House, this scenario is not impossible, but the reaction of the US Congress is hard to predict. TPP has a growing number of detractors, not the least amongst Congressional Democrats, and business is becoming weary of the time that has been taken. Towards the middle of 2015 the early jockeying for the 2016 US Presidential election will get underway. The political environment could well change once again for TPP.
This post was written by Stephen Jacobi, Executive Director, NZ International Business Forum
Exporters planning for growth - more FTAs needed
A survey undertaken by ExportNZ shows the overall business outlook for exporters is positive.
In the next 12 months the majority (76%) of respondents expect business profitability to improve, 19% stay the same and 4% to deteriorate. Most (53%) expected their business to employ more people, and the majority also expected their orders across all markets to increase; either slowly (51%) or substantially (31%).
Of course there are still obstacles restraining growth – the top being exchange rate levels and price competitiveness of products, followed closely by funding for developing overseas markets and overseas regulatory requirements.
That said, exporters are managing the high NZ dollar with a combination of strategies – the leaders being improving productivity, investing in new product development and hedging.
Also, these exporters are increasingly moving away from price as their competitive advantage, saying quality of product/service, innovation and customer service are their top three success factors.
The top export destinations for respondents were Australia, Europe and North America – followed by ASEAN. The ASEAN market was most mentioned as the next new market exporters were intending to export to (33%).
As New Zealand's third largest trading partner and third largest export market, ASEAN is significant, and so is the fact that we have an agreement establishing the ASEAN-Australia-New Zealand Free Trade Area (AANZFTA).
Respondents’ comments showed the value of FTAs, or rather the consequences of not having an FTA in place. For example, one exporter said: “Our EU competitors in Korea signed an FTA before New Zealand, meaning the customer does not have to pay the 8% duty. Because the EU got in ahead of us I estimate we lost approx. 0.5m in sales in the past 12 months.”
45% of respondents are facing regulatory and non-tariff barriers, and cite a number of difficulties, with China being mentioned quite often.
ExportNZ hopes the rich feedback from exporters on the tariff and non-tariff barriers in many different markets is useful for government officials. We’re keen to work with officials to help tackle these barriers.
This post has been prepared by Catherine Beard, Executive Director of ExportNZ.
Opening dairy markets through TPP
TPP has an ambitious agenda to open up markets. For the dairy sector in New Zealand and for Fonterra it offers prospects to break down long established and high barriers to trade. This matters as the dairy sector exports around 95% of the milk produced in New Zealand. In that situation it depends very much on keeping as many markets open as possible. Through the existing FTAs with Australia, Chile, China, ASEAN, Taiwan and now Korea a fair bit of the world is covered. Yet that still leaves large dairy markets like the EU, USA, Japan and Canada with very high tariffs up to 200-300% and with quotas of limited size.
TPP is the best opportunity available to attack the barriers in Japan, Canada and the USA as well as improving existing access in Mexico and Peru. Not surprisingly the intent of opening up these markets is not a shared objective with the domestic industries. Strong pressure is being exerted on their governments to minimise the tariff and other concessions.
Around the agriculture world dairy is a highly protected commodity. Its only rival is sugar.
The intent to eliminate tariffs, reach high quality solutions and comprehensively cover all products is very important in TPP. While there would inevitably be a longish time line to reach the goal of no tariffs this is a very serious negotiating objective. New Zealand has an outstanding record in its existing FTAs of reaching zero tariffs and obtaining high quality outcomes. Trade negotiations are always complex but they also need a clear purpose.
Fears are often expressed that New Zealand will ‘swamp’ domestic production in other countries. At around 20 million tonnes New Zealand is a relatively limited milk producer as compared to the whole of the EU and USA. The New Zealand supply is spread across a vast range of countries depending on long and short term market conditions. The objective in TPP is to open up more opportunities for dairy exports within TPP supplying countries including New Zealand.
A high quality TPP result would over time be a major advance in liberalising dairy trade. It would extend substantially the number of markets that are on a path to being opened and increase significantly the percentage of trade covered by FTAs.
This post was prepared by Ken Geard, Senior Trade Advisor at Fonterra. Ken is retiring after a long career in trade policy at first with the Government, then with NZ Dairy Board and latterly Fonterra. We in the New Zealand trade community thank Ken for his great service and we wish him all the best for the future.
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.