The TPP/RCEP opportunity for Viet Nam and New Zealand Remarks to the Track Two Dialogue with the Diplomatic Academy of Viet Nam Wellington, 2 February 2015 Stephen Jacobi, Executive Director, NZIBF

It’s a pleasure to join in welcoming such a distinguished delegation from Viet Nam to New Zealand, particularly as we celebrate the 40 ^th anniversary of diplomatic relations between our two countries.

New Zealand and Viet Nam share an important past but we are also focused on the future.

We are already partners in the ASEAN Australia New Zealand FTA which sets a high standard for trade liberalisation in the region.

And we are also involved in two major trade negotiations through which we are attempting to create a new framework for the trade and economic relationship for the whole Asia Pacific region.

The most advanced of these is clearly the Trans Pacific Partnership (TPP).

We were delighted when, after a period of observing the early stages of negotiation, Viet Nam decided to confirm its full participation in TPP.

No less significant in terms of potential impact, although a little behind in terms of timetable, is the Regional Comprehensive Economic Partnership (RCEP) which continues to make progress.

Both these negotiations are directed towards achieving a much bigger prize – a Free Trade Area of the Asia Pacific (FTAAP).

I’d like to make some opening remarks on these three instruments and I look forward to the insights from our colleagues from Viet Nam.

Changing needs of business

It’s worthwhile at this outset thinking for a moment about the big picture against which all these negotiations are taking place.

The fact is that all these negotiations build upon each other and seek to continuously improve the business environment by making it cheaper, faster and easier to do business in the Asia Pacific region.

That’s important today when more and more business is being done through increasingly complex supply and value chains.

Some of the data coming available is pointing to the increase in trade in what are called “intermediate goods” – that is to say things that are used to make something else.

The WTO has found that 55 percent of world trade today is represented by goods which are used to make other products.

Over a quarter of the content of goods traded internationally comes from the rest of the world ^[1].

This is the background against which trade policy is being made today and which gives rise to a new agenda based on market integration rather than market access.

Outlook for TPP

This is the agenda that TPP is trying to address.

A colleague of ours, Professor Gary Hawke, said recently that “TPP had won a rhetorical battle and is almost universally hailed as a ‘platinum standard’, ’21 ^st century’ agreement establishing appropriate standards for future economic integration”.

Professor Hawke is less convinced about whether the final result will live up to the rhetoric.

It’s true that TPP has been in the “end game” for some time now, although recent political developments in the United States appear to have unblocked the passage of Trade Promotion Authority (TPA) which is essential to move the negotiation forward.

New Zealand and Viet Nam have a number of shared interests in this negotiation which it would be good to discuss further.

We have also a particular point of symmetry – dairy is to New Zealand in this negotiation what clothing and footwear are to Viet Nam, in other words satisfactory market access outcomes on these principal products of interest are critical for us to achieve a result that reflects our national interest.

New Zealand has other key interests – a range of other market access interests, mostly agricultural, related especially to the United States, Japan and Canada ; an interest in better access to government procurement markets; an interest in conditions for foreign investment; an interest in disciplines on the operations of state owned enterprises; and a range of defensive interests related to pharmaceuticals, patent and copyright and use of the Internet.

We would be interested to compare these interests with those of Viet Nam.

As we meet here in Wellington today another round of Chief Negotiators’ meetings has just finished in New York and a further Ministerial meeting is promised for coming weeks.

While we all hope that the remaining, significant differences can be bridged, success is not guaranteed.

We in New Zealand cannot see how TPP can be effectively concluded without a strong market access package which opens the way for completion of the negotiation text on the rules for trade and investment in the 21 ^st century.

Progress in RCEP

RCEP is sometimes regarded as a plan B to TPP – a slower, possibly less ambitious arrangement, particularly given the involvement of the big three in North Asia and India, none of whom have FTAs with each other.

We are particularly interested in our Viet Namese colleagues views on RCEP, because it has always been an ASEAN idea, and starts with ASEAN and all its existing FTA partners.

On paper though, in its Guiding Principles, RCEP holds out a quite high level of ambition.

In some areas, like rules of origin, RCEP may even make faster progress than TPP.

New Zealand ‘s interests in RCEP are no different from those in TPP except with a different membership.

While there are some dissenting views in the membership we are hopeful of securing a strong vision for RCEP.

Such vision would for example see each participant country making initial tariff elimination offers starting substantially above 90% with a view to final results that are as near as possible to comprehensive,  providing between 90% and 100% tariff elimination on imports from each RCEP participant.

We will see how close to the 100% goal we can come – in any event as in TPP we need to aim for the maximum ambition to guide the negotiating process.

What seems clear is that pace will need to quicken quite substantially if RCEP is to be completed in 2015.

Towards FTAAP

Both TPP and RCEP are considered pathways towards a wider concept, the Free Trade Area of the Asia Pacific.

FTAAP was first mooted by the APEC Business Advisory Council (ABAC) in 2004 and adopted by APEC Economic Leaders as a formal goal for APEC in 2006.

The gains estimated in a study by Peter Petri, Michael Plummer and Fan Zhai for the East West Center and the Peterson Institute suggests that full free and open trade and investment in the Asia Pacific region could be worth around US$2 trillion for the region as a whole, US$5.8 billion for New Zealand and US$72.9 billion for Viet Nam[2].

Under this modelling Viet Nam would be the largest beneficiary of both TPP and FTAAP.

Now these studies are only as good as the assumptions that go into the modelling.

They also remain subject to the quality of the outcome and the depth of the integration that occurs.

For all these potential benefits, FTAAP remains elusive.

Certainly FTAAP, as a top down approach to creating regional economic integration will not be achieved through a conventional negotiating process.

So economies have had to go back to a bottom up approach and see the pathways as leading to the ultimate goal of FTAAP.

Last year under Chinese leadership the APEC Economic Leaders agreed to develop a collective strategic study to bring some greater focus to the FTAAP initiative.

Such a focus would be welcome and could help us work out what is becoming a veritable riddle of the universe – how to make TPP + RCEP = FTAAP.

The point is, and perhaps this is a good place to finish, if we want to see trade and investment play a role in expanding sustainable economic growth in our region, if want to reduce the cost and time of doing business, if we want to see much overdue structural reform in our economies, we need  to put in place a more seamless economic space for our companies to operate in, especially in this age of global value chains.

What better way to do this than through FTAAP if we can only work out how to get there!