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What is the new normal in New Zealand’s relationship with China?

On 26 February 2019 The Spinoff published Stephen’s article outlining recent developments in the relationship with China.  Read what he had to say here.

Trade in 2018 – still looking for that star !

Just as well the magi didn’t face tariffs at the border !  Here’s Stephen’s end of year round up!

 2018 will not go down in history as a good year for trade.  While international businesses struggled on, they did so against a backdrop of rising protectionism and all-out trade war between the world’s two largest economies. Will 2019 be any different?

 It sometimes said that not much changes in trade from year to year.  Not so in 2018 which was a year of two halves.

On the more positive side, some important new trade agreements were concluded.  Of course, here in New Zealand we’re thrilled about CPTPP* – a veritable mouthful of a trade agreement.  Rivalling it, if not in substance then at least in terms of an unpronounceable acronym, was USMCA*between US, Mexico and Canada – described unflatteringly by one commentator as “NAFTA O.8”. Then there was the linguistically more adventurous JEEPA – the Japan EU Economic Partnership Agreement.  Hats off to our Japanese friends – with CPTPP and JEEPA they have shown real global leadership in the cause of trade liberalisation (even if on agriculture they still need to fully overcome their worst instincts).

Trade restrictions, trade war, trade divorces

On the decidedly less positive side, protectionism has been let off the leash with trade restrictive measures in 2017-18 now seven times larger than recorded by the WTO in the previous period.  While the end of the year showed some, possibly only temporary, alleviation of the US China dispute, the consequences of the trade war have been felt in markets around the world as well as in the domestic economies of both presenting countries.  The impact on the WTO itself is most concerning. And de-stablising forces in the global trade architecture have also been felt in Europe, as the Brexit process has ground its way painfully towards an acrimonious UK-EU divorce.

What’s next for trade?

Where to for 2019?   The year will start on a positive note – CPTPP will enter into force for the six signatories with a first round of tariff cuts on 30 December with a second round for all except Japan on 1 January.  Japan’s second round of cuts will take place on 1 April. For Viet Nam entry into force and the two rounds of cuts take place on 14 January.  We expect at least one further accession to CPTPP in 2019, starting with the most likely candidate -Thailand.

Other important negotiations will continue during the year.  We are hopeful of progress with NZ/EUbut we are aware that these things take time and nothing will be concluded until everything is concluded.  We would be bold to forecast a conclusion to RCEP given past delays, but Ministers are on record saying this will happen by the end of the year.

On Brexit, who can possibly say what will happen?  There are differing views in our own team (here in the South Pacific!) but, notwithstanding the current polls, it does seem possible that calls for a second referendum will grow in intensity the closer we get to 29 March.    In November we published a discussion paper on New Zealand’s interest in a future FTA with the UK but much will depend on whether the UK exits the EU as planned on 29 March and on the shape of the future UK-EU relationship to be negotiated.  We forecast continuing uncertainty next year which is in itself corrosive to business and investor confidence.

Not out of the woods yet

We are not out of the woods on the trade war. President Trump’s dinner with President Xi at the G20 Summit resulted in a 90 day period during which both countries will refrain from new tariffs and return to the negotiating table.  That is positive, but a much-anticipated speech by President Xi on 18 December on the occasion of the 40th anniversary of China’s reform and opening up will perhaps have disappointed – no new measures were announced to address issues in the Chinese economy which cause concern not just for the US, but others as well.

Come next December we hope we are in a better place than today.  Trade negotiators like the magi continue to follow the star.  Let’s hope like them we can continue to move across borders without disruption!

*   (1) CPTPP = Comprehensive and Progressive Agreement on Trans Pacific Partnership

(2) USMCA = United States, Mexico, Canada Agreement

(3)  RCEP = Regional Comprehensive Economic Partnership

 

PM’s Europe visit – Stephen comments on Radio NZ website

Radio NZ asked Stephen to comment on PM Jacinda Ardern’s visit to London – read what he said here.

Earlier Stephen commented on the PM’s stops in Paris and Berlin – see here.

Finally Radio NZ asked Stephen to comment on Foreign Minister Winston Peters’ proposal for a Commonwealth Free Trade Agreement – not as unlikely as it sounds, see here.

A Trade Policy for Our Times (reprise)

Read Stephen’s assessment of the Trade Agenda 2030 released by Prime Minister Bill English on 24 March 2017 – here.

Further information on Trade Agenda 2030 can be found here.

We cannot afford short term thinking with China says Stephen Jacobi

Read Stephen’s article in the NZ Herald calling for NZ/China relations to be more diverse and sustainable – here

2017 – a year of growth and commemoration for NZ and China

This is an op ed Stephen wrote for the Chinese Herald, published on 10 March 2017.

2017 looks set to be an important and memorable year for the New Zealand China relationship.

Firstly, a visit to New Zealand by Premier Li Keqiang is expected in the coming months.  This is exciting news and demonstrates the great value China places on its relationship with us.  We can anticipate and look forward to renewed commitments to growing trade, cooperation in science and culture, people-to-people connections and more.

In the field of economic cooperation, this year has got off to a great start.  The Taniwha Dragon Economic Summit was held in February to promote opportunities for Maori led businesses with China.  These businesses already export $200 million a year to China, and the summit hoped to grow this number significantly.

There are some great projects around the country where Maori and Chinese are working together to achieve common goals.  I recently heard about Peppers Carrington Resort in Northland, where the new owner Shanghai CRED Real Estate is working with local iwi to ensure Maori cultural frameworks are understood and respected at the property.

Chinese language learning in New Zealand is getting a real boost this year, with the arrival of 144 Mandarin Language Assistants who will teach primary and secondary school students all over the country.  This is the largest number of assistants to arrive from China and shows real demand from schools for Chinese.

Later this year in Beijing a “One Belt, One Road” Forum is being held in Beijing.  That will be an opportunity for us to explore in greater depth how New Zealand can contribute to this bold new initiative on the part of the Chinese leadership, building on our membership of the Asia Infrastructure Investment Bank.

2017 is also a year of milestones.  This year marks the 45th anniversary of the establishment of diplomatic relations between China and New Zealand.  While many people may not appreciate the significance of this anniversary, it reminds us New Zealand was among the first Western nations to recognise the Peoples’ Republic of China in 1972.  Our relationship has since been marked by a number of other ‘firsts’, including our ground-breaking Free Trade Agreement which will be ten years old next year and which the two governments hope to upgrade before then

Another milestone being commemorated during 2017 is the 120th anniversary of the birth of Rewi Alley, the most famous New Zealander in China.  This year is also the 120th anniversary of Alley’s birth, the 90th anniversary of his arrival in China and the 30th anniversary of his death.  In both New Zealand and China this year Alley’s extraordinary legacy will be celebrated with a number of large events to mark the occasion.

The New Zealand China Council provides high level support for all these activities.  We are a small organisation, but our mission is big:  to demonstrate to all Kiwis that China is much more than a country to sell things to.  The Council is made up of a diverse group of influential New Zealanders, with interests ranging from trade and investment to tourism and education.  But the one thing that connects us is our passion and enthusiasm for China and the opportunities the relationship brings to New Zealand.

In the context of our wide-ranging relationship with China New Zealand’s large and growing Chinese community plays a key role.  We welcome you as immigrants and visitors to New Zealand and we are grateful for all you contribute to building diversity in our society.

We look forward to working hard throughout 2017 to share our enthusiasm for the New Zealand-China relationship with as many of you as possible.

John Key set high bar in relationship with China

When it came to New Zealand and China, John Key was acutely aware of the high stakes.

He knew China was an economic lifeline following the Global Financial Crisis, as export growth to our traditional markets stalled or went backwards.  He knew our living standards depended on lifting the economic relationship and setting aggressive new targets for trade in goods and services.

Key also knew he had to lead engagement from the top, investing his personal time and mana in the exercise.  The importance of guanxi, or business networks established over time through strong personal connections, was not lost on Key, who made no fewer than six official visits to China during his time as Prime Minister.

His commitment was clear on a number of occasions, including at the height of a serious food safety scare, when instead of sending officials in his place, Key personally flew to China to front up to the Chinese leadership, as well as millions of concerned Chinese mothers via the national news media.

Key also strongly encouraged other Ministers to spend time on the ground in China.  There were more than 15 Ministerial visits in 2010, a key year in setting the tone of the relationship.  Numerous high level business delegations followed, developing new opportunities in sectors from science and education to film and TV production.

This investment in China led to unprecedented levels of cooperation.  In 2010, Key and Chinese President Xi Jinping agreed to double bilateral trade to $20 billion by 2015, a goal reached a year early.  A more ambitious goal was immediately set to grow trade in goods and services to $30 billion by 2020.

Beyond trade, Key’s role as the ‘great reassurer’ served us well with China.  He calmly downplayed fears about China’s influence in the residential housing market, the sale of productive farmland and allegations of steel dumping.  He urged Kiwis to see China not as a threat, but for what it really is: an opportunity, and an exciting and fascinating country eager to engage with us.

Much of Key’s success probably came down to his personal qualities.  He was able to form a close personal relationship with President Xi, despite differences of view and outlook in many areas.  In the past 12 months, he had as many if not more face-to-face time with President Xi than almost any other world leader.

Just weeks before Key’s resignation, negotiations to upgrade to the 2008 Free Trade Agreement were announced to ensure Kiwi producers and businesses maintain competitive access to the Chinese market.  These developments to not occur in a leadership vacuum.  They require a conscious and consistent effort from the top, and the development of strong mutual trust.

Looking ahead, there is little reason to believe the immediate change in leadership in New Zealand will alter the trajectory set by the outgoing Prime Minister.  In his own words at a recent NZ China Council meeting, the China relationship is now in ‘top notch’ condition, and there is ‘a lot more’ in front of us.

Key’s legacy with China is more than just trade and more than a healthy balance of guanxi.  What he leaves is a challenge for all future Prime Ministers:  If you genuinely value our relationship with China, don’t just say so.  Get on that plane and prove it.

– As published in the New Zealand Herald 21 December 2016

Is Auckland stuck in second gear with China?

A question for my friend and incoming Auckland mayor Phil Goff:  How will you lift the city’s economic relationship with China?

One in 12 Aucklanders now identifies as Chinese; it is the country’s commercial capital and the gateway for Chinese visitors, students and merchandise trade.  But we are some way from realising the full potential on the economic side.  For a city with such a close cultural connection with China, we risk missing huge opportunities in markets from financial services to film, tourism and technology.

Last week the Committee for Auckland released a timely new stock-take of the city’s links with China across five vectors: trade, investment, tourism, education and migration.

The report attempts to set the record straight about what works and what needs still to be done.  It should be required reading for the new Mayor’s economic team.

To put it more simply, Auckland needs to target the premium layer of high value added activity that will drive Auckland’s economic development.  So how do we make this happen?

To begin with, Auckland needs to make greater headway growing trade revenue from higher value exports where the city holds a natural advantage, such as financial and business services, niche manufacturing and technology.  These are challenging areas to grow, and Auckland’s strategic direction for trade clearly needs more development.

We also need to need to raise Auckland’s profile among investors.  Chinese investment in New Zealand is low at just $7 billion, The largest investments to date have been in infrastructure and facilities, but it is the primary and food processing sectors that perhaps holds greatest attraction.  Auckland has an acute need for foreign capital to achieve its growth goals, and we should be thinking more proactively about how to attract Chinese investment in key projects.  There are still too many anecdotal stories of Chinese investors finding little to attract them in Auckland.

For a city that prides itself as one of the world’s most liveable, Auckland could do better at getting Chinese tourists to spend more time here.  If Queenstown remains the jewel in New Zealand’s adventure tourism crown, surely Auckland can become the destination of choice for tourists looking for water based activities, cultural experiences or our natural environment while staying close to high quality accommodation and shopping.  More hotels and more attractions can only come with investment and with facilitated approval processes.

We’re far and away the centre for export education. Some 70% of recent tertiary enrolments from Chinese students are in Auckland.  Yet there is still a perception that Auckland can be an unfriendly and unwelcoming place to live and study.  The number of Aucklanders travelling to China to study is also too low.

Finally, Auckland must be a place that migrants from China, and elsewhere, can readily call home.  Sadly, many face ingrained attitudes and prejudices that make settling a challenge.  The housing debate too often fixates on the impact of Chinese immigration on house prices rather than the broader economic potential of our relationship with China and the contribution migrants make to the city. This needs to change- quickly.

In short, Auckland has a huge stake in a successful relationship with China.  If we want to build a prosperous, dynamic, internationally connected and enterprise-friendly city, we must recognise that a richer relationship with China is a key engine that will drive this.

(Published in the New Zealand Herald online edition, 12 October).

A Trade policy for our times

The Government’s “refresh” of its Trade Policy Strategy is both timely and appropriate.  Hopefully it will prove substantive as well.

The existing strategy coined a generation ago by former Trade Minister Tim Groser, while still an MFAT official, has served New Zealand well.  It saw in the successful conclusion of the Uruguay Round, the inauguration of the World Trade Organisation (WTO) and led to the negotiation of a suite of high quality FTAs, including the as yet unratified Trans Pacific Partnership (TPP).

The world looks vastly different today, but no less uncertain.  Back then it was unknown whether the Uruguay Round would be concluded.  Today we face the same uncertainty with TPP.  Back then we were worried about rising protectionism and being excluded from new trading blocs.  What’s new?

In the interim business has changed profoundly.  Global value chains are transforming business models. Products are no longer made in one country and shipped to another in finished form but made “in the world” in multiple jurisdictions. Trade in services is growing faster than trade in goods, and has done so for the last decade.

The challenges faced by business today are also different.  There is still the urgent, unfinished business of tariff elimination especially for agricultural goods.  Even if TPP is enacted the NZ dairy industry will have duty free access only to around 13 percent of global consumption. Beef also faces ongoing barriers.  TPP delivers duty free access for most other products including horticulture and wine, but sanitary, phytosanitary and other technical barriers to trade routinely arise.

Non-tariff barriers are the highest priority for our agricultural producers as well as for manufacturers and the forest industry.  The needs of other industries are also becoming more prominent.  New priorities include improved conditions for a new generation of services industries, better conditions for outward and inward foreign investment, new rules for the digital economy and e-commerce and new ways of fostering innovation.   SMEs have long complained they find it hard to take advantage of new market openings.  New Zealand’s fast moving technology and creative sectors also want in.  There are new pressures for a better integration of environmental and labour disciplines in trade agreements.

The existing Trade Policy Strategy established a number of “tracks” for achieving better outcomes for New Zealand – the unilateral track focused on domestic reform; the multilateral track established primacy for the GATT and its successor the WTO; the bilateral track targeted individual countries with a focus on Asia, although with the mantra “Asia first, not first and last”; the regional track looked forward to the establishment of a new Asia Pacific Community derived from APEC.

This “multi-track” approach remains relevant.  But here too things have changed.  New Zealand now has FTAs with all the Asian economies except Japan, which would be delivered by TPP, and India, where our negotiation for a new FTA is languishing.  The three amigos of NAFTA – the US, Canada and Mexico – are also covered by TPP.  Outside the Asia Pacific we are making progress with the EU and may succeed in launching a negotiation next year.  Once the UK leaves the EU, we may have another willing partner, though this is likely to take some time.  A refreshed strategy could usefully help identify who our new partners for high quality FTAs might be – if not by naming them, then at least establishing some criteria about how to recognise them, including by considering regions of potential trade growth rather than simply looking to current trade flows.

The new strategy could also address the current situation of the WTO and offer some thinking about how its role as trade liberalising body can be strengthened even while it retains centrality as the holder of global trade rules and settler of disputes.

The big unknown remains TPP and the outlook for ratification in the US.  President Obama hopes TPP can be ratified in the lame duck session of Congress; if not, then the options are bleak.  The incoming President could declare TPP dead and buried, thereby turning her/his back on generations of American leadership on trade.  Or s/he could initiate a re-negotiation, which will be far from easy and will take considerable time.  Or TPP could be adopted, possibly after some ritual face-saving, by the new Congress.  Hope springs eternal in trade policy.

If we have learnt anything about the fractious debate about TPP, it is surely that we have to do more to explain the benefits of trade and investment to a sceptical public.  Those benefits include jobs and livelihoods, a richer variety of goods and services, and new opportunities at all levels.  Yet clearly we have to make trade work even better for people, especially those who face the challenges of adjustment.  That means more and better structures for consultation, more openness where possible, more involvement by business and other stakeholders, and, where justified, carefully-crafted policy approaches that moderate the risks of that adjustment.

Trade Minister Todd McClay has made a good start by holding public meetings about the strategy around the country. Hopefully these are occasions for listening as well as talking.  The times require a new strategy to respond both to the new demands of business and also the public disquiet about the pace and extent of globalisation. That requires more than just a tweaking of what’s there already.

(Published by the Dominion Post, 4 October 2016)

If not TPP then what?

This op ed was kindly published by The Spinoff on 16 August 2016.

Trade has been described as “war by other means”.

That led the US Defence Secretary in peak hyperbole to declare that the Trans Pacific Partnership (TPP) was as important to him as another aircraft carrier.

New Zealand’s interests are distinctly less martial, but placing TPP on the altar of lost dreams is a whole lot more serious than many imagine.

The world is more inter-dependent than ever before, although today that inter-dependence is under threat from political demagogues and backward-looking protectionists the world over.

What are the consequences and options before us if TPP does not proceed?.

Where are we now?

While TPP took six years or more to negotiate, it has been only six months or so since the signing in Auckland.

To come into effect TPP requires members representing 85% of the area’s GDP to ratify – these means both the United States as well as Japan.

Eight of the twelve parties including New Zealand have commenced the ratification process.

Four parties – the US, Canada, Chile and Brunei – have yet to get started.

President Obama is keen to see the TPP implementing legislation passed by the existing Congress in the ‘lame duck’ session after the elections on 8 November and before a new Congress and a new Administration take office on 20 January.

Last week the Administration took the first procedural step towards that end by sending a Draft Statement of Administrative Action to Congress.

Under the terms of the Trade Promotion Authority, the President is required to give at least 30 days notice to Congress of an intention to submit the text of a treaty like TPP for a vote in both Houses.

That Draft Statement does not commit the President to submitting the text, but is a pre-requisite for doing so.

Once the President decides to send the treaty text to Congress, which he may do at any time, the Senate and House must schedule the vote, up or down, within 90 days.

The Administration must also submit a number of other reports including an assessment of the impact of the treaty on employment and on the environment.

The problem is that US politicians on both sides of Congress say they have diffculties with TPP.

Some – on both left and right – hate the whole idea of trade, which they wrongly accuse of exporting jobs and hollowing out the domestic economy.

Others, mostly on the left, think TPP goes too far in entrenching property rights for pharmaceutical companies and giving new rights to foreign investors.

Others, mostly on the right, think TPP doesn’t go far enough in terms of intellectual property, tobacco and financial services.

Everyone seems to want to do something about so-called currency manipulation, except American currency manipulation of course.

But here’s the key point:  TPP, after six or more years of exhausting negotiation, represents a careful balance – not perfect by any means, but the consensus reached between the twelve parties.

TPP is not the end of the story for the quest for more effective trade rules – in some senses it is only the beginning of a much wider initiative to create a new framework for trade and investment in the Asia Pacific region.

That’s why there is so much riding on TPP and why TPP is still a good idea which will simply not go away.

Why is TPP still a good idea?

For New Zealand TPP would link us to the eleven other member economies representing 36% of the world’s GDP, markets taking over 40% of our exports and 812 million consumers.

To cut a very long story very short, the benefits of TPP would be four-fold:

  • TPP would convey measurable trade advantages for all export sectors and open up important new markets like Japan and the United States (where our competitors have better access than us).
  • TPP would put in place an updated and extensive set of rules for trade and investment which we have had a hand in making and which extend into important new areas like labour and the environment.
  • TPP would improve the climate for inward and outward investment while upholding the Government to regulate in public health, the environment and the Treaty of Waitangi.

TPP would require little policy change in New Zealand, with the major change being an extension to copyright term.

If not TPP, then what?

If we set aside the political rhetoric for a moment, we need to remember that TPP was initiated under President Bush and has been completed under President Obama.

It has not been thrust upon the American people – it has been negotiated by their representatives.

But despite the best will of President Obama the lame duck strategy may not work given the polarisation around this issue in the election campaign.

If so, then it will be for a new President and Administration to address the critical economic and foreign policy issues behind TPP.

There are three broad scenarios.

One is that TPP will be completely abandoned and the United States will turn its back on decades of American-led globalism with all the implications for its trade and foreign policy interests this implies.

The other is that there will be an attempt at re-negotiation.

This will not be easy – why should any of the TPP partners do so when they have been so grievously let down before?

It will also not be quick – it normally takes an incoming Administration the best part of  a year to appoint a US Trade Representative and other key personnel.

The last scenario is that the incoming President will make the calculation that TPP is too good to pass up and will submit the treaty to Congress.

This scenario cannot be totally dismissed but has been rejected by both Presidential candidates.

Any delay in moving forward with TPP will give rise to important shifts in global trade policy.

Other negotiations – like the Regional Comprehensive Economic Partnership or RCEP, under negotiation between 16 Asian economies including New Zealand – will take on new importance.

But equally, we cannot be confident that the outcome of RCEP would have the same high level of ambition as TPP.

Other groupings may also emerge but none of them are likely to include the United States.

The very issues and concerns that fuelled the development of TPP will undoubtedly find an outlet but this will take time – time, unfortunately, that will translate into lost opportunities.

Conclusion

What will not change is that we will need to continue to connect with the rest of the world and the rules for this engagement will remain vitally important for us.

Things may not be looking good for TPP but it is too early still to declare the battle lost.

We must continue to put to our American and other friends that turning aside from TPP would represent a significant threat to all our interests.

If TPP is not the answer, then we will be faced with the daunting task of finding other options.

Making trade not war is just a much better way of using our valuable time and resources.