Guest post: Challenges of negotiating trade liberalisation

Guest post from Stephen Hoadley, Associate Professor of Politics and International Relations

Given the number of free trade agreements that New Zealand has concluded during the past decade, from China to Taiwan to the Pacific islands to the Middle East, one might suppose negotiating new ones will get easier.  Not so.

I have just published a book on New Zealand Trade Negotiations.* My survey from 1971 to the present shows just how drawn-out and difficult negotiations can be. The prospect is for future difficulties. There are at least five reasons why this continues to be so.  

 First, New Zealand has seven agreements pending that are proving hard to move to completion. The obstacles are often beyond our negotiators’ power to remove, for example in India’s ingrained protectionist inclination. As a small player New Zealand ministers and officials can only persuade, not oblige, their counterparts in larger trading partners to open their markets. Ministerial and officials’ energy is consumed in persuading reluctant partners such as the Gulf Cooperation Council to sign on the dotted line and, more important in the long run, fully implement the terms of the deal.

Second, negotiations with new partners must contend with economic uncertainties as the composition of trade shifts and new value chains adapt to changing consumer tastes, or to consumption slow-downs. The inclusion of services, investment, and intellectual property and biosecurity protection alongside traditional trade in goods adds new dimensions of uncertainties and complexities. Negotiation requires intelligence and attention to detail as well as persistence and stamina.

Third, scepticism about free trade is growing among people who lose out or fail to benefit.   Consequently electorates are becoming volatile and demanding, and free trade is often identified as a cause of economic malaise. Prospective FTAs are facing renewed political resistance as electorates in the US, UK, South Korea and elsewhere reject familiar leaders and opt for protectionist policy changes.   President Trump’s criticism of past presidents’ trade deals, and withdrawal from the TPP, have cast a long shadow, but not the only shadow. As established regimes are replaced by newcomers, as in the United States, New Zealand trade negotiators must scramble to identify new counterparts, establish relations of cooperation and trust, and persuade them that trade liberalisation won’t generate political opposition.

Fourth, ideologies of economic nationalism are on the rise. Pessimists are predicting a reversal of the recent trend to liberalisation and globalisation, and this can only be bad news for an exporting nation such as New Zealand. Legitimising trade deals among the wider public has become an essential element of the trade negotiation process, one not always successful as in the TPP. Leaders must now negotiate on two fronts, one international and the other domestic, a notion developed by Harvard University’s Robert Putnam and widely cited.**

Fifth, personnel skilled in trade negotiations are in demand and the supply is short. New Zealand’s Ministry of Foreign Affairs and Trade have a Trade Negotiation Division of nearly three dozen officials backing up the Minister of Trade but they are fully occupied with preparing feasibility studies, cost-benefit analyses, detailed proposals, and a repertoire of responses to partners’ requirements distilled from decades of experience.  In addition, line diplomats are obliged to engage with trade issues, and even act as negotiators at short notice, in addition to their other duties.   Trade ministers have dealt with this problem by seeking advice also from private sector producer and export leaders and associations such as the NZ International Business Forum. Trade Minister Todd McClay recently established a Trade Advisory Group which enlists members of civil society.

As I describe in New Zealand Trade Negotiations, a negotiation typically passes through eight phases: problem identification, diagnosis, pre-negotiation, negotiation, legitimation, ratification, implementation, and adjustment.  Each phase requires special skills.  The legitimation phase, so vital for national political consensus, now extends across all the other phases. The process as a whole may take as little as one year (with Singapore), or as long as eight years (with Hong Kong), or never get started despite persistent efforts (with the United States).

Is New Zealand’s position hopeless because of the diminutive size of its economy and consequent lack of bargaining chips? Fortunately, I found the opposite. New Zealand negotiators made up for clout by applying ‘issue power’, that is, focussing on specific issues and applying logic and evidence to persuade counterparts to grant concessions. They even cited New Zealand’s vulnerability and smallness as reasons why concessions could be made in the spirit of fair play at no cost or risk to the larger economies.

My conclusion is that New Zealand’s track record is commendable, and the ministerial and official time, effort, and costs have paid off in the form of steadily rising exports and incoming investments.   Further evidence is that leaders in the EU, the UK, and the US, and of the Pacific Alliance in South America, have all indicated that New Zealand is near the head of the queue for negotiation of new free trade agreements. That New Zealanders are respected for their negotiation skill is indicated by the facts that the WTO frequently chooses them as chairs of the agricultural committee and successive disputes resolution panels, and that British Government has turned to New Zealand experts such as Crawford Falconer for advice as London prepares to conduct post-Brixit trade negotiations around the world.

But focus, persistence, and skill are still required by New Zealand negotiators, and support by the political parties and public are still required, so the Government can keep up the trade liberalisation momentum.

 *published by the New Zealand Institute of International Affairs, c/o Victoria University, PO Box 600, Wellington 6140, 297 pp., RRP $40.

 ** Robert Putnam, ‘Diplomacy and Domestic Politics: The Logic of Two-Level Games’, International Organization, Vol 42 (Summer 1988).

The NZ Trade Negotiations book is distributed by the New Zealand Institute of International Affairs, c/0 Victoria University, PO Box 600, Wellington 6140  or order from Tina.vanErpersRoijaards@vuw.ac.nz   or via website www.nziia.org.nz.  Or phone Tina at (04) 463-5356.  $40 inclusive of postage and GST.   $30 for students.