Are trade agreements an appropriate vehicle for developing trade relationships in the 21st century? Remarks by Stephen Jacobi to MBIE Tapping into Talent Seminar, Wellington, 6 August 2012 NZIBF – 6 August 2012

Thanks for the opportunity to be with you today.

A friend of mine, someone very senior in a major New Zealand company, reckons that “free trade agreements” convey quite the wrong impression of what they actually set out to do.

My friend says that they’re never “free” ? have there been any FTAs that have actually got rid of all trade restrictions?

They’re not just about trade either ? especially these days, they go way beyond import/export of goods to take in investment, innovation and domestic regulation.

And no-one ever seems to agree !

Some years ago now I was Private Secretary to then Trade Minister Jim Sutton.  The Minister visted Malaysia and met the fiery Malaysian Trade Minister Rafidah.

Minister Sutton outlined what New Zealand was trying to achieve with the Closer Economic Partnership we had just concluded with Singapore in an attempt to interest Malaysia in a similar deal.

“That’s right Jim, said Minister Rafidah, we don’t need free trade agreements, let’s do a CEP instead”.

I think it fairly clear that when we talk about free trade agreements we have something of an appellation problem.

But for the purposes of today’s discussion let’s assume we know what we are talking about ? that is to say, agreements between economies (let’s not call them countries ?) which seek to eliminate barriers to trade and investment and put in place new rules for doing business at the border and behind the border.

Are such agreements an appropriate vehicle for developing trade relationships in the twenty first century?

I think they most certainly are ? and for several reasons.

The first reason is because these agreements focus on what governments do ? on regulation, the core business of government.

Trade agreements are not the whole answer to developing trade ? or rather we should say, international business ? relationships.

Much of that is up to businesses themselves and their ability to produce innovative and competitive products which customers want to buy, to develop the right distribution networks to get their products to consumers and to develop profitable and sustainable commercial relationships over time.

Governments can be more or less helpful in this process, especially in terms of creating the right environment for investment, innovation and entrepreneurship back home as well as facilitating market entry by providing advice and support  – I don’t need to lecture you on this, this is the bread and butter of MBIE and other agencies especially NZTE.

But at the end of the day the business is done by business.

In contrast, trade agreements, being treaties between nation states, focus largely on the business of government.

Trade agreements have two major impacts ? they provide certainty around market access, whether a product may enter a foreign jurisdiction in the first place, and they affect the cost of doing business, both in relation to tariffs on entry and other compliance costs including behind the border.

In today’s growth-constrained world both governments and businesses are looking for new ways to do more business, to do it faster and more efficiently, and to use business to drive the creation of wealth and growth.

Today governments have fewer fiscal levers to pull and increased trade and investment provide a ready means of getting economies growing again.

Reducing barriers and the costs of doing business is something that is immediately within the scope of government action and when this can be done in collaboration with other governments then so much the better.

The economic stimulus that can be achieved by a successful conclusion to the Doha Development Agenda or the Trans Pacific Partnership ? if these are able to be achieved ? cannot easily be replicated by other policy alternatives.

So I think it reasonable to conclude that trade agreements, or whatever we might call them, are an attractive option for governments particularly at this time of fragile economic recovery.

A second reason why I would consider trade agreements to be an appropriate vehicle is quite simply because they exist ? if they did not exist, we would need to invent them or find some other vehicle to meet the needs of governments and business.

When I say “exist” I mean that such agreements or rather the negotiating processes they give rise to are an established feature of the international trading system.

They are something that governments are set up to do and there are all sorts of contributing policy development processes that are already in place.

This does not mean of course that the nature of these negotiating processes cannot or should not evolve to meet the specific challenges of today’s environment.

I suspect this is where others at this table have a legitimate concern.

Trade agreements may be all well and good for negotiating market access at the border but are they really suited to address behind the border issues?

Now any trade agreement is only as good as the policy development process that has gone into its formulation.

Trade agreements also need to reflect the way business is being done today ? increasingly that means that business models based on import/export are giving away to more sophisticated forms of internationalisation where services and investment come into play and business is being transacted with global supply chains.

To be successful trade agreements need to capture this new reality ? this is the 21st century aspect that is being promoted so vigorously in the context of the Trans Pacific Partnership for example.

If the debate surrounding TPP is anything to go by, it seems clear that trade negotiators also need, perhaps more than ever before, to take account of a range of issues and stakeholder interests that they may not have encountered before.

Tariffs and rules of origin are one thing, intellectual property and investment regimes are another.

That implies a much stronger role for agencies, like this one, that have in the past had a more domestic focus.

I don’t think this means that trade agreements are not relevant to this new environment, it just means that they need to evolve.

It is dangerous I think to believe that trade agreements can be advanced to a pre-determined model.

Of course all economies, and not the least the United States, prefer to work off a template which is well understood and more easily able to be approved by governments and domestic legislatures.

Unfortunately these models may or may not conform to the environment in which the negotiation takes place ? it’s hard to advance a 21st century agreement from a 20th century template.

That’s why even in the arcane world of trade negotiations we see evolution and change and why it is important for stakeholders to be involved in the process and making their views known to negotiators and governments.

I will immediately be challenged on this point by those who claim that the secret nature of these negotiations means that stakeholders can’t participate fully in the negotiating process.

There are of course very good reasons why the content of trade negotiations must remain confidential and equally good arguments for suggesting that this too has to change.

I think we will continue to see evolution in this space also ? already trade negotiations are more open than they used to be and certainly here in New Zealand officials are meeting regularly and often with stakeholders from all sectors of the community.

As someone who tries to follow trade negotiations, I can see the need for greater transparency ? provided of course, this doesn’t detract from getting the business done.

To conclude then, we need first and foremost to get beyond the appellation problem.

Trade agreements are a means to an end.   They are the art of the possible.

Trade agreements are advanced by governments not because some textbook tells them this is what should be done, but because they can deliver value to national economies through increased business, lower costs and ultimately growth and jobs.

Trade agreements do not form the whole picture of how a government can develop more successful trade and international business relationships but they form an important part.

By focusing on core government business of regulation both at and behind the border, by reflecting the way business is being done and ensuring account is taken of stakeholder interests, a new generation of trade agreements can provide some solutions to the challenge of promoting economic development in this early part of the 21st century.
EXECUTIVE DIRECTOR,NZ US COUNCIL / NZ INTERNATIONAL BUSINESS FORUM