Submission to the Ministry of Foreign Affairs and Trade – Upgrading the ASEAN Australia-New Zealand Free Trade Agreement

JULY 2019

This submission is made on behalf of the NZ 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. As a leadership body, NZIBF leaves to its members the task of identifying specific sectoral issues. This submission therefore comments on cross-sectoral or wider issues arising from the FTA upgrade process.

Summary

NZIBF supports the intention to upgrade the ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA) with a view to modernising it, further reducing barriers impacting exports, and boosting trade in the region.

The Association of South East Asian Nations (ASEAN2) is an important trading partner for New Zealand, with two way trade worth NZ$18.29 billion3 in the 2018 calendar year. Six of our top 20 trading partners are members of ASEAN. ASEAN plays an important role in the global supply chains of many New Zealand companies.

The AANZFTA is New Zealand’s largest plurilateral free trade agreement in terms of number of participants. It is a key building block in developing our relationship with South East Asia. When it entered into force nine years ago, it was a world class example of a plurilateral FTA. The world has moved on since then, digital trade has risen dramatically and there are new protectionist pressures emerging in the global economy. We therefore support upgrading the AANZFTA to ensure it meets the current and future needs of New Zealand business.

About the New Zealand 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, to the New Zealand Government and public stakeholders. The NZIBF Board brings together leaders from amongst New Zealand’s largest internationally oriented companies, several of which actively trade in the ASEAN region, and peak business organisations representing many exporters of all sizes engaged in trade with ASEAN member countries.

Incorporated in May 2007, NZIBF works with companies, business organisations 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.4 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).

ASEAN is a significant trading partner

ASEAN is an economic market with enormous potential for New Zealand businesses and investment. As of 2018, ASEAN has a regional population of almost 650 million and a GDP of US$2.9 trillion.

In the 2018 calendar year, two-way trade between New Zealand and the ASEAN nations was worth $18.29 billion. Six of New Zealand’s top 20 most valuable trading partners are from the ASEAN region (Singapore ranked 7th, Thailand ranked 8th, Malaysia ranked 10th, Indonesia ranked 13th, Viet Nam ranked 16th and Philippines ranked 17th).

Total NZ exports to the ASEAN region were worth $7.36 billion in 2018. This was made up of $5.71 billion in goods exports and $1.64 billion of services exports. New Zealand’s main goods exports were: milkpowder butter and cheese ($2.75 billion); logs and wood ($344 million); meat and offal ($270 million); wood pulp and wastepaper ($267 million) and fruit ($243 million). Our services mainly comprised travel services ($1.27 billion), plus other business services ($169 million) and transportation services ($118 million).

Total imports from the ASEAN region into New Zealand in 2018 were worth $10.934 billion, comprising $8.68 billion in goods and $2.25 billion in services. The main goods imports were: petroleum and products ($2.14 billion); vehicles, parts and accessories ($1.4 billion); electrical machinery and equipment ($869 million); mechanical machinery and equipment ($603 million) and food residues, wastes and fodder ($412 million). The main services imports from ASEAN were transportation services ($906 million); travel services ($595 million), and other business services ($345 million).

NZIBF supports the intention to upgrade the AANZFTA

NZIBF welcomes the Government’s consultation with the New Zealand public about how to upgrade the AANZFTA. This Agreement has done much to boost New Zealand’s relationships in South East Asia. The AANZFTA has eliminated or lowered tariffs on many New Zealand exports to ASEAN and helped to facilitate trade with the region. Since AANZFTA entered into force in 2010, two way trade with ASEAN has grown by 30%, an increase of more than $6 billion.

NZIBF supports the intention to upgrade the AANZFTA in order to address remaining issues and further develop rules in modern trade policy areas. Given the passage of the Comprehensive and Progressive Trans Pacific Partnership Agreement (CPTPPA) and the soon to be concluded Regional Comprehensive Economic Partnership Agreement (RCEP), which includes ASEAN and New Zeaand amongst others, it is important that the AANZFTA be brought up to date and remain an example of a best practice Free Trade Agreement.

We understand that the upgrade process will address rules of origin, customs procedures, services, e-commerce, investment, competition, government procurement and trade, and sustainable development.

We are disappointed that some key trade issues are out of scope

Goods Market Access

It is disappointing that goods market access is out of scope for the AANZFTA upgrade negotiations. This is particularly so for the agricultural exporters who are members of the NZIBF and who continue to face tariff and non-tariff barriers in the ASEAN region, notwithstanding the improvements yielded by the original AANZFTA. We understand that goods market access is being addressed with ASEAN in the RCEP negotiations however we are not confident that process will fully deliver on New Zealand’s goods market access needs.

Non-Tariff Barriers (NTBs)

We would like to see the AANZFTA upgrade address the perennial issue of non-tariff barriers to trade. We note this is not on the list of issues to be addressed and we think that is a significant omission. NTBs remain one of the biggest challenges for New Zealand exporters in ASEAN as they add cost, complexity and uncertainty to New Zealand trade.

We are aware that NTBs have been a contentious area of discussion in the RCEP. We would expect that any new (improved) NTB rules in the RCEP will be carried over to the AANZFTA but would welcome clarification from the government on this point.

On NTBs in RCEP we have sought a unified framework for NTMs and NTBs. Coherent regulatory frameworks that are consistent with internationally agreed standards would be very helpful in reducing non-tariff barriers. We have advocated for RCEP to deliver regional product labelling, testing, licensing and registration requirements that are transparent, efficient, economical and consistently applied. We also support the principle of Sectoral Annexes for example for prepared foodstuffs and beverages and cosmetics although we understand this matter has made little headway in the RCEP negotiations.

Similarly, we would have preferred the AANZFTA upgrade process address the need to strengthen the Sanitary and Phytosanitary (SPS) chapter and the chapter on Standards, Technical Regulations and Conformity Assessment Procedures (STRACAP) with a view to increasing the transparency and certainty of requirements, allowing New Zealand exporters to develop and strengthen their trade with the ASEAN region.

We support the inclusion of all the elements that are within scope

Rules of Origin (ROO)

We need ROO that are simple, trade facilitative and business friendly because overly complex rules of origin can be a barrier to FTA utilization. In the RCEP context, we have recommended that exporters be given a choice of either a Change of Tariff Heading (CTH) or Regional Value Content (RVC) 40 rule where possible so they can make the most of regional supply chains.

We are pleased that AANZFTA liberalised market access for New Zealand goods through Rules of Origin that allow for ‘cumulation’. This means that New Zealand goods used in the manufacture of products in ASEAN countries or Australia are considered local content, making New Zealand products an attractive supply option for businesses trading in the region. As we have done with RCEP, we support a de minimis of USD$1000 across the board and self-declaration or self-certification of origin in addition to traditional third party certification approaches.

Services

The original AANZFTA provided greater access for New Zealand service providers in the region, particularly in the education sector. NZIBF would like to see deeper and broader services commitments for all services in the AANZFTA using a negative list approach. (RCEP has selected a positive list approach). As in RCEP, we want AANZFTA to deliver services market access outcomes will be commercially meaningful, that is, a comprehensive approach without carve outs of key services sectors, and which opens up the modes of supply.

E-Commerce

NZIBF recognises the transformative power of the digital economy and encourages the negotiation of forward-looking, ambitious digital trade-friendly outcomes in the AANZFTA upgrade, including in relation to facilitating electronic commerce and to unrestricted cross- border data flows, subject to appropriate provisions to protect consumer privacy, enhance trust and promote cyber security, designed in such a way that those protections do not act as a disguised barrier to trade.

Growth in e-commerce is changing the way consumers behave and businesses operate in ASEAN countries. It is important that the AANZFTA upgrade supports the economic realities of this way of doing business, including by advancing trade rules and regulatory requirements so they are fit-for-purpose and facilitate e-commerce.

Investment

Foreign direct investment is a key element in New Zealand’s sustained prosperity, supplementing our relatively shallow capital base, fostering the development of productive businesses and infrastructure, facilitating the innovation that drives domestic competition and productivity growth, and generating new employment opportunities. NZIBF is accordingly a longstanding strong supporter of foreign investment in New Zealand and of provisions in our trade agreements which provide appropriate protection for foreign investment (both inward and outward), while also recognising the Government’s continuing right to regulate in the public interest.

NZIBF member companies have some significant investments in ASEAN economies, such as Fonterra’s investments in Malaysia and Indonesia. It is therefore important that any changes to the AANZFTA should protect current and future investments in the region, including through the principle of national treatment.

In principle NZIBF favours investment liberalisation on a negative list approach. We advocate for the AANZFTA to liberalise rules on investment in the region, with clear rules and legal requirements, transparency around any FDI restrictions, freedom of transfer of funds and provisions on expropriation and compensation. As a general rule, NZIBF supports the inclusion of Investor-State Dispute Settlement provisions in New Zealand’s Free Trade Agreements and is pleased to note that the AANZFTA includes a chapter on consultations and dispute settlement.

Customs Procedures

NZIBF advocates for efficient, transparent and user-friendly customs rules and procedures that are consistently applied at the border. This can be a huge problem for businesses of sizes including Micro, Small and Medium Enterprises. We would like to see the Customs Procedures Chapter of the AANZFTA upgraded to include provisions, similar to those in the NZ-Korea FTA and CPTPP Agreement, that provide for the release of goods within a period no greater than that required to ensure compliance with a Party’s customs law, and to the extent possible within 48 hours of arrival, and within six hours for express shipments. The chapter currently simply states “Each Party shall ensure that its customs procedures and practices are predictable, consistent, transparent and facilitate trade, including through the expeditious clearance of goods.”

Government Procurement

We are pleased to see government procurement on the list for discussion as it was not addressed in the original AANZFTA. We recommend negotiators focus on the principles of WTO consistency, inclusiveness, transparency and high-level of ambition. New Zealand should encourage all ASEAN members to join the WTO Government Procurement Agreement (GPA).

Other Issues Within Scope

We note the intention to address competition issues, building on the existing competition policy chapter of the AANZFTA, and to discuss trade and Sustainable Development for the first time in the AANZFTA context. NZIBF is supportive of the inclusion of these issues and does not have any specific comments.

Recommendations to the Ministry of Foreign Affairs and Trade

NZIBF recommends that the Ministry:

1. note the NZIBF’s support for upgrading the AANZFTA
2. note NZIBF’s support for seeking improvements across the AANZFTA as outlined.