From Our Blog
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.
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.
TPP and Japan - hopefully not back to the future
From Stephen Jacobi in Japan
President Obama’s visit to Tokyo 23-25 April should tell us whether there is a way forward with the Trans Pacific Partnership (TPP) negotiation. It is in the nature of trade negotiations to teeter on the brink of collapse but there is concern that momentum risks being lost as the United States and Japan go head to head on the perennial issue of market access for agriculture.
A visit to Tokyo last week suggests there may be readiness on the Japanese side to offer new concessions but these are unlikely to satisfy the Americans who remain, like New Zealand, wedded to the idea of a high quality, ambitious and comprehensive agreement. The Japanese Government continues to want to protect “sacred” sectors - five in all including rice, dairy products and beef. Japan may be close to concluding a negotiation with Australia with rather limited liberalisation for some of these same sectors, which will nonetheless give Australia a (hopefully) short term advantage in the Japanese market. For its part the United States has yet to reveal fully its own hand on market access given the stand off with Congress on the President’s trade promotion authority also known as “fast track”.
It is disappointing that things have come to this. A 21st century agreement is being held up by last century issues. A plurilateral negotiation between 12 partners is dissolving to a series of unedifying bilateral deals. It has been clear from the beginning that TPP was to be comprehensive and Japan knew this when they joined the negotiation. So it may well prove to be “back to the future” for TPP.
Can this blockage be overcome? President Obama’s leadership could be decisive – as the largest economy the United States needs to set the tone. Prime Minister Abe also needs TPP to bolster “Abenomics” and get the third arrow of structural reform loosed from its quiver. The Australians could help by hanging tough on the need for genuine market openings or better still waiting for TPP to deliver this. There is much more at stake than some additional tonnages of beef. It is nothing less than the future liberalisation of Japanese economy and the future of TPP as a pathway to wider liberalisation in the wider Asia Pacific.
TPP is a high stakes game. Those stakes are playing out in Tokyo these coming weeks.
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.