“Friends with benefits – CER, SEM and TPP”

Stephen was pleased to address a business breakfast organised by the Australian Consulate-General, Austrade and the University of Sydney.  The subject was the economic relationship with Australia – here’s Stephen’s speech:

It’s a pleasure to be with you this morning and to join Professor Romalis from the University of Sydney and our friends at Austrade to talk about a critically important economic relationship for New Zealand.

For some years now I have played a role, on behalf of BusinessNZ, in helping co-ordinate the annual Australia New Zealand Leadership Forum, which brings together senior government, business and community representatives to foster and advance the relationship

The Leadership Forum has been meeting for twelve years now and will do so again later this year.

 The Leadership Forum has been described as a symbol of trans-Tasman “togetherness”.

 That “togetherness” is not just a sentimental thing – although sentiment is certainly part of the Anzac relationship.

 That “togetherness” is also about business, about the economic value both countries derive from their integration with one another, and increasingly, about the way in which both countries, together, can integrate with the rest of the world.

That’s why the relationship might also be described as “friends with benefits”:  this morning I’d like to talk about some of these benefits by focusing on the pillars of that economic togetherness – CER, SEM and TPP.

CER – a vision delivered

CER or to give its proper title ANZCERTA – the Australia New Zealand Closer Economic Relations and Trade Agreement – is more than an acronym.

CER is quite simply the world’s most comprehensive trade agreement, which was signed in 1983.

It’s hard to remember what the world looked like then, but the trans-Tasman environment was certainly not the space for by and large free movement of goods, services, investment and people it has become today.

CER had a profound impact on New Zealand because it was the first step towards the liberalisation of what had become a fortress economy marked by absurd import licensing, high tariffs and even agricultural subsidies.

Of course not everything was achieved on day one, but the pace quickened notably over the years so that the deadline for the removal of quantitative restrictions and tariffs was achieved five years earlier than scheduled.

And for those who are – quite rightly – concerned that the Trans Pacific Partnership (TPP) will not achieve complete free trade by the end of the implementation period, CER at the outset was no different with dairy products excluded at the beginning.

What we have seen quite clearly is that the CER agenda has evolved over time.

The first decade was taken up with a focus on manufactured goods and agriculture.

 This included:

  •  removal of tariffs and import licensing
  • elimination of anti-dumping
  • establishment of processes and institutions for conformity assessment and quality assurance
  • development of customs and quarantine cooperation
  • provisions on government procurement.

 The second and third decade moved to a period of deeper integration leading to the development of a concept we now know as  the Single Economic Market (SEM).

 This included:

  •  focus on services, business law harmonisation, regulatory reform, investment (CER Investment Protocol)
  • further market opening for goods
  • mutual recognition of goods standards (TTMRA)
  • single food safety regime
  • new rules of origin (introduced in 2009)
  • enhanced cooperation on biosecurity and customs.

 This period has given rise to a flourishing of the trade and economic relationship and the emergence of a truly Trans-Tasman economy and of trans-Tasman enterprises better able to participate in the global supply and value chains and networks that today mark the way business is being done around the world.

 The traffic hasn’t all been one way.

Australia has been New Zealand’s top trading partner since 1989 (apart from a brief period in 2014) but New Zealand is Australia’s fifth largest trading partner.

Australian companies are our largest foreign investors with a stock of around A$100 billion.

New Zealand is the largest source of in-bound visitors to Australia.

All this didn’t happen by accident.

CER has been the result of close collaboration between governments and business and supporting networks.

As it has evolved, it is important to note that CER’s model for integration is not based on “one size fits all” – rather than adopting identical and standards on both sides, the objective has been to achieve equality of outcomes so that ultimately it becomes as easy to do business in Auckland as it is in Sydney and vice versa.

It is also true that as CER has evolved and adapted to changing economic circumstances, making progress has become more difficult, not so much because the vision is no longer there, but because as economies become more integrated, attention turns to policies and regulations that have a lot to do with national sovereignty – the focus turns from at the border to behind the border.

That’s essentially the challenge of the SEM agenda.

Where to next with SEM?

SEM is the natural consequence of CER: the goal is to create a seamless environment for business across the Tasman.

 Closely connected to the SEM goal is the concept, first elaborated by Prime Ministers Rudd and Key, of “net trans-Tasman benefit”

This requires a move beyond a narrow calculation of national economic benefit on any single issue to a balanced benefits approach across the range of areas under consideration.

Some notable applications of this principle applied to the SEM include:

  •  signature of the Closer Economic Relations Investment Protocol (February 2011) – an important advance in the bilateral economic relationship aligning CER with other modern high quality free trade agreements and facilitating investment by reducing compliance costs for investors
  • Steps aimed at making travel across the Tasman a more “domestic-like” experience, including:
    • smartGate for arrivals and departures at Auckland, Wellington and Christchurch international airports;
    • biosecurity direct exit lanes at New Zealand international airports
    • the transfer of x-ray images of checked in baggage from Australian airports to MAF in New Zealand
    • joint studies looking at further streamlining of trans-Tasman travel.

One important issue which is raised regularly in the Leadership Forum but which thus far, shall we say, has “failed to capture the imagination of Australian officialdom” is the mutual recognition of imputation and franking credits.

This could provide a further boost to trans-Tasman investment well beyond the short term fiscal costs of implementation.

This one issue would do more to move the dial in the trans-Tasman economy than any other currently before us.

Both Governments remain committed to maintaining the momentum in the SEM and the broader integration project.

A report by the Joint Productivity Commissions in 2012 made some useful suggestions.

At their joint meeting earlier this year Prime Ministers Turnbull and Key urged business leaders to come up with some practical ideas.

Prime Minister Turnbull said they were looking for ideas to “help scrape the barnacles from the bottom of the boat”.

The Australia New Zealand Leadership Forum has collaboration underway in a number of sectoral areas – tourism, infrastructure, health technology, innovation and agri-business.

The aim is to come up with a series of recommendations which can be presented to the Leadership Forum later this year.

Certainly the future of CER and SEM is likely to be as much around areas of practically focused business collaboration in areas like innovation, infrastructure and investment, as in a continuing series of improvements to policy and regulation.

It is also increasingly apparent that the opportunity lies as much in third markets as it does between the two economies.

That’s where TPP comes in.

Realising the TPP opportunity

 New Zealand and Australia have been for a generation close partners in APEC established at the initiative of Prime Minister Hawke in 1989.

New Zealand and Australia are partners with ten other economies in TPP which was signed in Auckland in February and is now undergoing ratification.

New Zealand played an instrumental role in getting the TPP concept off the ground through the earlier P4 agreement concluded with Singapore, Brunei and Chile.

Australia and New Zealand had earlier explored a P5 concept with the United States, Singapore and Chile, which was overshadowed by the conclusion of the GATT Uruguay Round in 1993.

Australia and New Zealand are also working together with Asian economies in the Regional Comprehensive Economic Partnership (RCEP).

Whether through APEC, TPP, P4, P5or RCEP both countries are seeking to develop learnings from the CER experience which can be applied more widely.

It’s not an exaggeration to suggest that goal of economic integration has been trialled in CER, wholesaled in APEC and retailed in TPP.

TPP contains many CER innovations including the concept of regulatory coherence but develops them further and applies them in a wider setting.

Like CER over thirty years ago TPP is trying to address the needs of a new economy and of businesses operating in a new environment.

The goal is for a seamless economic space across the twelve, designed to lead to a broader vision of a Free Trade Area of the Asia Pacific (FTAAP) which links all 21 members of APEC.

TPP goes beyond trade in goods, to trade in services, investment, innovation, the digital economy, SME concerns and even into labour and the environment.

It is a future-facing agreement, which sets a new framework for trade and investment  – that is, if it can be successfully ratified by the 12 members.

TPP can come into force only if it is ratified by economies representing 85% of the GDP of the members.

For New Zealand the stakes are incredibly high – just as they were when we signed CER.

TPP represents 36% of global GDP and over 40% of our exports.

TPP will deliver free trade arrangements with the United States, Japan, Canada, Mexico and Peru with whom we do not have FTAs and extend our relationships with existing partners Malaysia and Viet Nam.

TPP has little direct impact on our existing relationships with Australia, Chile, Singapore or Brunei but adds some new commitments in specific areas.

All New Zealand export sectors stand to benefit from TPP – the impact on the beef, wine, horticulture, dairy, seafood and wood sectors is perhaps the greatest.

To implement TPP New Zealand has to make very few policy changes.

Only in the area of copyright are we required to make a major change – from 50 years after death of the author to 75 years – but this change brings us into line with Australia.

As in most other FTAs, New Zealand will provide commitments to foreign investors including investor state dispute settlement but these will not apply to Australia where the CER Investment Protocol will be the instrument governing investment between us.

Conclusion

 In signing and hopefully ratifying TPP all members are faced with a fundamental choice.

The choice is for regional economic integration, a seamless economic space and greater togetherness – which is good for business, good for security and good for development.

In CER New Zealanders and Australians have been able to see the benefits of that togetherness for over thirty years now.

CER was revolutionary at the outset but has been more evolutionary in successive stages particularly as we move to the SEM.

TPP is also revolutionary but will doubtless also in time adopt a more evolutionary path.

In that sense each new trade agreement builds on the last and makes way for the next as the economy expands and evolves under the changing nature of business.

There is something very positive about our CER togetherness.

Friends with benefits – who could want anything more?

Stephen was pleased to address a business breakfast organised by the Australian Consulate-General, Austrade and the University of Sydney.  The subject was the economic relationship with Australia – here’s Stephen’s speech:

 

Stephen is appointed Executive Director of the NZ China Council

Stephen has taken over the reins – at least until January 2017 – of the NZ China Council, an organisation funded by government and business to promote a strong and resilient relationship with China.   Read more about the appointment here.  Stephen will continue his other roles working with a range of business and government clients at Jacobi Consulting.