Submission to MFAT: Proposed NZ-Pacific Alliance Free Trade Agreement

SUBMISSION TO THE MINISTRY OF FOREIGN AFFAIRS AND TRADE

PROPOSED NEW ZEALAND/PACIFIC ALLIANCE FREE TRADE AGREEMENT

OCTOBER 2017

Introduction and Summary

This submission is made on behalf of the New Zealand International Business Forum (NZIBF), whose members are listed at Annex A1. NZIBF is a forum of senior business leaders working together to promote New Zealand’s engagement in the global economy.

NZIBF warmly welcomes and supports the Government’s intention to negotiate a free trade agreement (FTA) with the Pacific Alliance (Chile, Colombia, Mexico and Peru). There is significant potential to expand and deepen the relationship with the Pacific Alliance for direct mutual benefit. While current trade and investment flows are comparatively modest, an FTA would help to reduce trade barriers and increase awareness of opportunities in each others’ markets, and could potentially enable more expansive global value chains to develop spanning from Latin America deep into Asia, given New Zealand’s existing FTAs in Asia and likewise the Pacific Alliance countries’ extensive trade networks into Mercosur and other regional economies.

Such an FTA would also have important strategic benefits. Three of the four Pacific Alliance members are also members of the Trans Pacific Partnership Agreement (TPP), and the fourth – Colombia – would make an excellent candidate. The TPP and the Pacific Alliance are both considered pathways to the Free Trade Area of the Asia Pacific (FTAAP). The FTA would help to capture and reinforce the forward- leaning substantive outcomes of the TPP negotiations and also strengthen the building blocks towards FTAAP. Formal trade architecture aside, NZIBF sees both the TPP- 11 negotiations and a New Zealand-Pacific Alliance FTA as logical next steps towards broader efforts to deepen and strengthen trade flows and supply chains in the region and to promote regional economic integration.

As a leadership body, NZIBF leaves to sectoral groups the task of identifying specific issues in the negotiation. This submission therefore comments on cross-sectoral or wider issues arising in the FTA. In sum, NZIBF believes that the goal of the FTA should be a comprehensive agreement with a commitment to eliminate all barriers in all goods and services sectors by an agreed deadline, ideally as quickly as possible. There should be no a priori sectoral exclusions from the ambit of the negotiations but

1 The views in this submission are those of the NZIBF as a whole. Individual members may have different views on specific issues covered in the submission.

differing timetables for liberalisation could be used where necessary. The negotiating agenda should encompass all issues of relevance to both sides including market access for goods and services, investment, competition policy, intellectual property, government procurement, labour and environment issues.

NZIBF recommends that the New Zealand Government seek to conclude negotiations with the Pacific Alliance as soon as possible on the basis of a substantive and mutually advantageous outcome.

About the NZ International Business Forum

NZIBF provides a voice to articulate the needs and priorities of New Zealand’s international business community, and in particular the importance of open markets and trade and investment flows, to the New Zealand Government and to other stake- holders. The NZIBF Board brings together leaders from among New Zealand’s largest internationally-oriented companies and peak business organisations. A list of Board Members is in Annex A.

Incorporated in May 20072, NZIBF works with companies, business organizations and government agencies to implement projects in the international trade and economic sphere, including working to develop New Zealand’s key international business relationships and conducting research relative to New Zealand’s competitiveness. NZIBF receives no direct government funding for its operating budget but from time to time receives funding for jointly-funded projects. Funding is also provided in respect to the policy advice and support NZIBF provides to the New Zealand members of the APEC Business Advisory Council (ABAC).

While this submission is made on behalf of the NZIBF membership, other NZIBF members may make their own submissions containing more detailed comments on specific issues relevant to their individual business interests.

The economic case for an ambitious FTA with the Pacific Alliance

Given the current uncertainties in the global trading system, it is important for New Zealand to seek both to strengthen and to diversify its trading relationships. The economic case for doing so with the Pacific Alliance – a dynamic, fast-growing market of 221 million consumers, with a combined GDP of almost US$4 trillion and accounting for around 35 percent of the Latin American economy – is a strong one.

While the current bilateral trade relationships with the four countries of the Pacific Alliance are relatively modest (a total of NZ$722 million in exports in 2016), there is significant potential for this to grow, thanks to complementarities in both production approaches and sectors (meat, dairy, horticulture, seafood; agribusiness/agri-tech and other niche manufacturing; services such as education, tourism and New Zealand specialized areas such as environmental services and food/agriculture-related services). The reduction and elimination of barriers to trade and investment, and the higher profile generated by the negotiating process itself, would both serve to enhance trade and investment flows.

2 NZIBF is a successor organisation to the NZ Trade Liberalisation Network Inc which was established in 2001.

In particular (and in the absence of TPP/TPP-11), we do not currently enjoy any preferential access opportunities with Mexico (our 22nd-largest trading partner), Peru or Colombia. Important issues for New Zealand in trading with Mexico include access for dairy products and beef (where New Zealand faces a competitive disadvantage as a result of US and Canadian access under NAFTA) as well as sheepmeat. Even if TPP-11 proceeds, however, there are likely to be additional benefits to be gained from the current negotiation.

An FTA would also help to ensure that New Zealand exporters remain competitive with other third-country exporters into Pacific Alliance markets. The US already has FTAs in place into all Pacific Alliance markets. Australia, Canada and Singapore are currently also in negotiation with the Pacific Alliance, and the EU is also casting its net widely with potential trading partners (it is updating a trade agreement with Mexico and has recently revived its longstanding negotiating process with Mercosur); moreover the renegotiation of NAFTA could also see enhanced US and Canadian exports into the Mexican market. Clearly New Zealand exporters would be set at a considerable disadvantage across many sectors if we did not seek to level the playing field through the current negotiation.

A Pacific Alliance FTA could also potentially deepen mutual involvement in global value chains, including into Asia where we have strong FTAs already, and especially with China and ASEAN. On the latter, NewZealand held a warmly-received Integration Partnership Forum with the Pacific Alliance in 2015 which showcased not only the deep integration between the trans-Tasman economies through the Single Economic Market but also New Zealand’s and Australia’s FTA with ASEAN; this reflected a growing interest from the Pacific Alliance economies in deepening their relationship with this economic powerhouse, and we should seek to capitalise on that.

There would also seem to be plenty of scope for increased investment activity. Current investment flows are low, but given the potential for greater services trade, services- linked investment (for example, in expanding offshore education offerings) and additional investment to support goods trade (for example, in relation to joint agricultural production/agri-tech) there would seem to be considerable potential leverage the platform of an FTA to expand two-way investment too.

The strategic case for an ambitious FTA with the Pacific Alliance

An FTA with the Pacific Alliance would have important strategic benefits. The Pacific Alliance shares New Zealand’s orientation as outwardly-focused free traders (including, variously among the four, in the TPP negotiations, as longstanding members of the agricultural free-trading Cairns Group and in the Geneva-based Trade in Services Agreement negotiations), and there is already a strong network of FTAs among and between the Pacific Alliance and other economies in the region. The Pacific Alliance’s own efforts to deepen ambitious integration within the four economies are likewise to be commended. An FTA with New Zealand would serve to burnish both parties’ credentials as forward-looking and creative negotiating partners.

Three of the four Pacific Alliance members are members of the Trans Pacific Partnership Agreement, and the fourth – Colombia – would make an excellent

candidate. The TPP and the Pacific Alliance are both seen as pathways to the broader concept of a Free Trade Area of the Asia Pacific (FTAAP), currently being explored by APEC economies. An ambitious outcome with the Pacific Alliance would support and give credibility both to TPP-11 and to broader FTAAP aspirations, particularly in the context of worrying signals about US commitment to liberalizing trade architecture, including in respect of NAFTA, TPP and indeed the WTO.

On a related note, NZIBF would also like to ensure that the negotiations are conducted and concluded in a way that would enable (and indeed, encourage) other economies to join the negotiations at an appropriate time. From New Zealand’s perspective, one obvious strategic ‘next step’ following on from the process with the Pacific Alliance would be to use this agreement as a beachhead into the wider Mercosur zone.

Approach to the negotiations

In terms of scope, we would see the Pacific Alliance FTA as an ideal candidate for a ‘next-generation’ agreement which not only addresses tariffs and other market access issues at the border, but also focuses on behind-the-border issues such as regulatory coherence and alignment among domestic economies and non-tariff barriers, strong science-based sanitary and phytosanitary (SPS) and technical barriers to trade (TBT) chapters deeper and broader trade in services, the digital economy and investment flows, intellectual property, SMEs and other areas. In that regard, we would see the TPP approach as a good starting point on which to build.

Our vision is for a high-quality, ambitious and comprehensive agreement. We would like to see the negotiations concluded on these terms as soon as possible. We would also encourage the negotiations to build in a review process to take account of the further developments in regional trade architecture which are likely in the coming period.

We also consider that it will be very important for the Ministry and Government to consult widely with all stakeholders, seeking to ensure that the process is as inclusive and transparent as possible, as far as the negotiating parameters and sensitivities allow.

Recommendations to the Ministry of Foreign Affairs and Trade

NZIBF recommends that the Ministry:

1. notetheNZIBF’ssupportforthenegotiationofacomprehensiveFTA between New Zealand and the Pacific Alliance;
2. agree that the goal of the FTA should be the elimination of all barriers in all goods and services sectors by an agreed deadline without a priori sectoral exclusions from the ambit of the negotiations;
3. agree that the negotiating agenda should encompass all issues of relevance to both sides including market access for goods and services, investment, competition policy, intellectual property, electronic commerce and cross-border

data flows, government procurement, labour and environment issues, seeking to use WTO disciplines as a starting point in the negotiation as appropriate;

d. consult widely with all stakeholders, operating on the basis of a maximally inclusive and transparent process as far as the negotiating parameters and sensitivities allow;

e. develop an active communications and outreach programme aimed at deepening New Zealand business’ understanding of the opportunities presented by the FTA negotiation

f. agree to proceed to conclude these negotiations as soon as a substantive and mutually advantageous outcome is to hand.

For further information

Stephen Jacobi
Executive Director
NZ International Business Forum Phone: 0294 725 502
Email: stephen@jacobi.co.nz

Issued by NZ International Business Forum October 2017