From Our Blog
A Trade Policy for our times
The Government is “refreshing” its trade policy strategy. That’s both admirable and timely.
The existing strategy coined a generation ago by former Trade Minister Tim Groser when still an MFAT official has served New Zealand well. It saw in the successful conclusion of the Uruguay Round, the inauguration of the WTO and led to the negotiation of a suite of high quality FTAs including the as yet unratified TPP.
The world looks vastly different today but no less uncertain. Back then it was unknown whether the Uruguay Round would be concluded. Today we face the same uncertainty with TPP. Back then we were worried about rising protectionism and being excluded from new trading blocs. What’s new?
In that time business has changed profoundly. Global value chains are transforming business models. The challenges faced by business are also different. To the still urgent, unfinished business of tariff elimination for mainly agricultural goods, there now needs to be added more effective ways of addressing non-tariff barriers, improved conditions for a new generation of services industries, better conditions for outward and inward foreign investment, new rules for the digital economy and e-commerce, new ways of fostering innovation. SMEs and the fast moving tech and creative sectors want in. There are new pressures for a better integration of environmental and labour disciplines. Who are our new partners for high quality FTAs and what prospect is there to revive the WTO?
If we have learnt anything about the fractious debate about TPP, it is surely that we have to explain the benefits of trade and investment to a sceptical public. Those benefits include jobs and livelihoods, a richer variety of goods and services and new opportunities at all levels. Yet clearly we have to make trade work even better for people, especially those who face the challenges of adjustment. That means more and better structures for consultation, more openness where possible, and more involvement by business and other stakeholders.
Trade Minister McClay has made a good start by holding public meetings about the strategy. Hopefully these are occasions for listening as well as talking. The times require a new strategy to respond both to the new demands of business and also the public disquiet about the pace and extent of globalisation. That requires more than just a tweaking of what’s there already.
This post has been prepared by Stephen Jacobi, Executive Director of the NZ International Business Forum.
Oh, What A Lovely War
Who spoke to whom about what in China has over recent weeks fuelled some intense speculation and even political fallout about whether there is a looming trade war.
Mercifully the Chinese Government – through the Ambassador in Wellington – has now dismissed the claim that China would retaliate against New Zealand food if we proceed with an anti-dumping action on steel.
What lessons can we learn from all this?
First, trade disputes may arise, particular when global supply and demand pressures are brought to bear. Fortunately we have the rules, protocols and processes to deal with them and to ensure that they do not escalate into trade wars. That’s the chief advantage of trade agreements which detractors fail to grasp. Rules are better, especially for smaller economies, than no rules at all.
The second lesson is that when it comes to dealing with China we need to realise that this is a big country with layers of officialdom. The random acts of individual officials do not necessarily reflect the considered policy of the Chinese Government. It is good to see that our leading exporters in China have people on the ground who are alert to potential risks and in close contact with government agencies.
The third lesson, and one we have learned with a number of large economies including the United States, the European Union, Indonesia and even our good friends Australia, is that we are not without protection from the WTO in the event trade disputes are not possible to solve at the bilateral level.
In these circumstances a clear head, a firm resolve and the rule-book are the best ways to meet any challenges head on.
This post was written by Stephen Jacobi, Executive Director of the NZ International Business Forum and Executive Director of the NZ China Council.
Brexit: Keep Calm and Carry On (Doing Business)?
The Big One or just a tiddler temblor? The initial dust of the British vote to leave the EU may have settled, but we are likely to see ongoing aftershocks for New Zealand and in global trade. New Zealand businesses have already experienced currency and market volatility; over the longer term the predicted slow-down in UK and EU economic growth are likely to dampen demand for our exports and we may see a drop in inwards investment too. The EU is a significant trading partner and the UK has traditionally served as a stepping-off point for New Zealand exports into the rest of Europe as well as accounting for a large share of trade itself, taking around one-third of NZ goods exports to the EU and nearly half of services exports. Demand aside, in the short term at least the British market should not get any tougher: current rules will apply until the UK leaves the EU (which could take two years or longer), and even after that, the UK seems likely to default to the status quo (that is, the EU’s WTO commitments) – at least until it can negotiate new terms. (There may be complexities for agriculture products, but the picture is still murky.)
Looking ahead, New Zealand has a strong interest in making an early start in negotiating an ambitious, high-quality and comprehensive bilateral UK FTA. Britain has a solid trade-liberalising pedigree and senior British figures have already signalled a strong and urgent interest in negotiating with key partners such as China, India and the US. For New Zealand, a UK-NZ agreement would complement the FTA negotiation that we already have underway with the EU. (For the NZIBF’s EU FTA discussion paper, click here.) That said, it is daunting to contemplate the choreography involved in the next months and years as the EU and UK try to settle the terms of the UK exit and then negotiate a new bilateral arrangement; as the EU effectively renegotiates current FTAs with some 50 trading partners along with continuing the scheduled negotiation of new FTAs (including with New Zealand); and whether or not (technically and politically) the UK can negotiate with others prior to its exit from the EU. As far as New Zealand is concerned, the European Commission is still well-disposed, but politically the Brexit impact continues: the Commission has just announced that under pressure it has scuppered earlier plans for a fast-track approval of its landmark FTA with Canada, giving EU Member States a stronger national parliamentary role in ratification. More broadly, it is hard to gauge the extent to which there will be any broader geopolitical Brexit impacts, at a time when many countries globally are engaged in efforts towards negotiating regional trade deals. For better or worse, Brexit may yet come to be seen as a seismic shift in global trade.
This post was prepared by Stephanie Honey, NZIBF Associate Director
RCEP COMES TO TOWN
It’s not a secret – negotiators from the sixteen member economies of the Regional Comprehensive Economic Partnership (RCEP) are meeting in Auckland 12-18 June.
RCEP brings together the ten ASEAN economies plus the three North Asian giants (China, Japan and Korea) and Australia, New Zealand and India. RCEP is sometimes styled as a sort of Chinese-led version of TPP. It is not. ASEAN is in the driving seat, not China. And while on paper RCEP might appear as ambitious as TPP, it may not yet reach as far.
As we posted on this site back in December “clearly RCEP has the potential to be a very significant trade agreement if it lives up to its goal of being a modern, comprehensive, high-quality and mutually beneficial economic partnership agreement. RCEP seeks to build on ASEAN’s network of bilateral free trade agreements (FTAs). The trouble is that some of these FTAs weren’t all that ambitious to start with. At the half way stage of the RCEP talks, there are signs that the market access provisions will be less exciting than TPP”.
Some water has flown under the bridge since then but RCEP needs to be more ambitious if it is to deliver for the region’s businesses. That includes a high level of tariff elimination, flexible rules of origin, services liberalisation and measures to streamline regional value chains through trade facilitation, investment and regulatory coherence and co-operation. Measures to ensure the agreement is relevant to SMEs are important. Don’t hold your breath though for the sort of enforceable environment and labour commitments we see in TPP.
New Zealand already has FTAs with 14 of the 16 RCEP participants. TPP, once ratified, will deliver an FTA with Japan leaving India as the main interest for us. Our own bilateral FTA negotiations with India have languished in recent years. An ambitious and comprehensive RCEP could also play a role, alongside TPP, in creating a pathway for wider regional trade liberalisation.
As host for this 13th round of RCEP negotiations the New Zealand is organising two stakeholder sessions on Tuesday 14 June at the Sky City Convention Centre for those wanting to find out about or make input into these negotiations. Further information is available at https://mfat.govt.nz/en/trade/free-trade-agreements/agreements-under-negotiation/rcep/
This post was written by NZIBF Executive Director Stephen Jacobi.
Non tariff barriers – a new frontier for trade policy.
A recent report from the forest industry has drawn attention to the increasing prevalence of non tariff barriers (NTBs).
NTBs are the next frontier for trade policy. As tariffs are brought down through comprehensive trade agreements, governments tend to make greater use of non tariff measures (NTMs).
NTMs and NTBs are not the same thing. NTMs can be instituted for a range of public policy reasons – to protect human health, the environment or biosecurity. NTMs only become NTBs when they are more trade restrictive than necessary.
Some governments use NTMs/NTBs for protectionist reasons. When the measures apply only to imported products, or differentiate between trading partner, you can be fairly sure something is rotten in the state of Denmark.
Other NTBs are notoriously difficult to identify and even more to address. Compulsory standards, often not based on international norms or legitimate science; technical regulations requiring amendments to the way products are manufactured; testing regimes which require labyrinthine procedures; product approvals requiring inspection of individual premises – all these are examples of NTBs which frustrate New Zealand exports.
The forest industry is by no means alone in this. The food industry faces a large number of NTBs given that it deals with perishable products, traded across long supply chains. Manufacturing is also highly affected.
Other countries occasionally accuse New Zealand of maintaining NTBs. Our strict biosecurity regulations, applied for good reason, are often cited. Our regulations prohibiting the commercialisation of trout are less easily able to be defended.
What can be done about NTBs? Trade agreements like TPP seek to put in place new disciplines around the way regulations are made and thus restrict the scope of NTMs. The ability for trading partners to express their views on proposed measures before they are implemented is a case in point. That’s why the Government is saying that the greater benefit from TPP will come from addressing NTBs rather than reducing tariffs.
It's also important for business to work closely with the Government to identify these NTBs. That’s why the work of the forest industry is welcome. Another example is the annual report published by the horticulture industry.
On the new frontier of trade policy we need all players to lend their shoulder to the wheel.
This post was prepared by Stephen Jacobi, Executive Director of the NZ International Business Forum.
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.