NZ/Pacific Alliance – game on!

Stephen welcomes the launch of FTA negotiations between NZ and the Pacific Alliance – see the NZIBF statement on the Tradeworks site here.

Trading in an uncertain world – the post-TPP agenda for New Zealand and Asia

On 6 April 2017 Stephen addressed the World Services Group in Auckland – read his remarks on the Tradeworks website 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

Stephen talks with Duncan Garner about Chinese Premier Li Keqiang’s visit

Watch Stephen talk with Duncan Garner on TV3′s AM Show about the visit of Chinese Premier Li Keqiang  

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.

Asia Pacific Integration – with or without the United States?

This is the text of an address Stephen gave to the Asia Forum in Wellington on 7 February 2017.

It’s good to be with you this evening and to have this early opportunity, as a new year unfolds, to speak about the outlook for trade and investment in the Asia Pacific region.

This year is definitely not a case of “plus ça change, plus c’est la même chose”. 

A new President in the White House is challenging the model of past American leadership in the global economy and with that long-held principles and practices of economic co-operation and integration.

This coincides with a new questioning around the world of the process of globalisation, how its benefits are shared and its challenges managed.

I am perhaps a little brave, at this early stage, in accepting Farib’s invitation to explore these issues – the President has been in office for less than a month (somehow it seems longer!) and his Administration is not yet completely in place.

I am certainly of the view that we need to let time elapse before being too definitive about the policy choices New Zealand might have to make in the light of these profound changes in the global environment.

It is not too early to start thinking about how we might position ourselves and so tonight I’d like to explore with you:

  • firstly, where the process of economic integration in the Asia Pacific region has led us thus far
  • secondly, how this process might be challenged in the months to come
  • and lastly, what we here in New Zealand need to be doing.

I’m speaking to you this evening mainly from the perspective of the NZ International Business Forum, a group of senior business leaders concerned with New Zealand’s engagement in the global economy.

These themes are relevant across the range of my work with organisations including the NZ China Council, the APEC Business Advisory Council and the Australia New Zealand Leadership Forum.  

Economic integration – how far have we come?

One of the much repeated criticisms of the ill-fated Trans Pacific Partnership (TPP) was that it was not a trade agreement at all.

I read as much in a recent blog on the website of the Foundation for Economic Education.

Rather than a simple agreement to lower tariffs for mutual benefit, the writer alleged, TPP morphed into a massive international regulatory regime over 5,000 pages long. It was weighed down by numerous non-trade provisions aimed at appeasing non-trade special interests”[1].

It’s not the purpose of my remarks tonight to attempt to rebut the many criticisms of TPP but this particular one calls for a little more economic education!

Of course TPP was a trade agreement – the larger part of those 5000 pages are taken up by complex schedules outlining the process for the elimination of tariffs.

(We can debate whether TPP is a “free” trade agreement since in some limited cases, albeit ones of interest to New Zealand, the goal of zero tariffs was not reached).

But there’s a much bigger picture here and it’s really not complicated – trade is not trade anymore.

Trade has been replaced by a set of much more complex economic interactions between firms and whole economies.

Professor Peter Petri and colleagues, in a report to ABAC in 2015, captured this well when he said:

“Businesses (today) engage in more varied activities, with a wider range of partners, and in more markets than ever. Major technological and economic trends are disrupting the business environment, including the emergence of global value chains, the digital/Internet revolution, the rise of a giant middle class, and dramatic improvements in connectivity[2].

Many of the objections to TPP overlook the fact that the business model in the region has changed and that global and regional value chains, where production occurs across multiple jurisdictions, are, in the words of Professor Petri, “an Asia Pacific innovation”.

New Zealand is not immune from this movement.

New Zealand manufacturers and processors of natural resources including food and forest products are suppliers into these global value chains.

As my friend John Ballingall from NZIER suggested in a recent op ed: “The days of Kiwi firms shipping butter and whole sides of lamb direct from the processing plant to the end consumer are long gone”[3].

Research undertaken by NZIER for the Pacific Economic Co-operation Council (PECC) shows that while New Zealand is struggling to lift its overall participation in GVCs we do much better in relation to agriculture and food and beverage production.

To quote John Ballingall again:  “This world of global value chains (GVCs) poses a number of challenges and opportunities to Kiwi firms, and forces policy-makers to think in non-traditional ways. What’s been done in the past is unlikely to be ideal now as New Zealand looks to boost its productivity and living standards”.

It was precisely to try to find new ways of incentivising and enhancing access into these global value chains that TPP was conceived.

In that sense TPP represented an effort for the regional framework of rules for trade and investment to catch up with the action – even if in the end it was a very long and tortuous process.

Hence the need for the agreement to cover not just tariffs but non-tariff barriers, not just goods but services, not just trade but investment, not just border measures but behind the border measures, not simply regulatory harmonisation – as the writer of that blog contends – but processes for regulatory coherence and convergence, not “one size fits all” but “one fit for all sizes”.

I promised this wouldn’t become an apologia for TPP but simply put TPP was trying, in all its insufficiency, to reflect the new reality of the way business is done in the region and beyond.

The fact of the matter is that business is moving faster than the regulatory system and has been doing so for some time.

TPP was one instrument for achieving economic integration – certainly something less than the utopia of free trade but a very good second best option.

TPP is not the whole answer either – it is a coalition of twelve willing partners, which was always designed to lead to something much larger, an APEC-wide grouping gathered together in the Free Trade Area of the Asia Pacific (FTAAP).

Nor is TPP the only such pathway to FTAAP.

In Asia there is the Regional Comprehensive Economic Partnership (RCEP).

I’m tempted (but it would be unkind) to describe RCEP as a coalition of 16 unwilling partners, given the rather limited level of ambition, which seems to characterise the negotiating process.

It is important to stress that RCEP is not the forum in which China, as our American friends would have it, “is writing the rules for the region”.

RCEP is led by ASEAN, not China, and while on paper seeks an ambitious outcome, is mostly about ASEAN integration with the rest of East Asia.

For its part China remains very interested in the concept of the Free Trade Area of the Asia Pacific (FTAAP).

In his address to the APEC CEO Summit in Lima last November President Xi Jinping described FTAAP as a strategic choice concerning the long-term prosperity of the Asia-Pacific; We should steadfastly promote its construction and provide institutional guarantees for fostering an open regional economy”[4].

President Xi also expressed a preference for inclusiveness:

Any regional trade arrangement, in order to earn broad support, must be open, inclusive and all-win; closed or exclusive pacts are not the right choice”.

Finding a way to realise the FTAAP vision has been difficult.

The theory was that TPP and RCEP, once concluded, would coalesce into FTAAP which would be anointed by the coming together of China and the United States in a new framework which could spark life into a global process in the World Trade Organisation.

Hope clearly springs eternal in the realm of trade negotiations!

Challenges to the existing order

The arrival of President Trump in the White House has clearly put paid to much of this grand strategy – at least for the time being.

His decision to withdraw from TPP was easily done, if fundamentally flawed – after all, he was withdrawing from a treaty that had not come into force, the benefits of which had not been fully seen.

But there are broader issues at play.

His “America First” policies, including the call to bring businesses back to the USA, pose a direct challenge to the prevailing business model in the region.

His stated preference for bilateral deals runs counter to the quest for a region-wide framework of rules for trade and investment.

These rules seek to make doing business easier while avoiding the infamous “noodle bowl” effect of conflicting and overlapping disciplines.

Any future adventurism in US foreign policy, particularly with regard to China, could serve to destabilise the stability and security of the region.

This stability is a necessary pre-requisite for advancing economic and commercial interests.

All of this reverses former President Obama’s policy of seeking to engage more directly in the region through the “Asia pivot” of which TPP became, more by association than by design, the flag-bearer.

It may well be of course that these worst fears may not be realised – as I said, these are very early days in the life of new Administration.

But even at this point it is not hard to see that there could be a departure from what we have known of American leadership in the region.

In a recent memo the respected head of the American think-tank CSIS, John Hamre, writes that we are back in 1949 – a time when President Truman faced an existential choice about whether to concentrate on domestic growth and competitiveness at the expense of global recovery after World War II.

Hamre writes – we are back to the great challenge that faced President Truman. Will America shake off its deep- seated desire to pull back and nurse its bruises, or will it champion an international order designed to create a broad environment where human potential can blossom?[5]

It was after all American leadership, which imposed a benign order on the region after the conflict of the last century.

It was this leadership, which helped secure the emergence of the World Trade Organisation as the repository of trade law and a framework for settling disputes

It is this leadership, which has in more recent times, trialled new arrangements for trade liberalisation through NAFTA and a range of other agreements, and helped shape the new business model we see today in the region.

This is not to say that the existing order is either perfect or sufficient – clearly it was not.

In the economic space that order has come under intense criticism.

There has been criticism for failing to take sufficient account of environmental and sustainability issues.

There has been a perceived failure to ensure that those who are disadvantaged from the adjustment brought about by changing patterns of production and trade are appropriately cared for and helped into new areas of enterprise.

And there is the criticism that economic integration has served to advance the interests of multinational corporations especially through measures aimed at stimulating and protecting investment or through the rules being devised for the digital economy.

“Making globalisation work for people” is not just a slogan – it has become a policy imperative in the age of Brexit and Trump.

So, in 2017, we face not only the prospect of new direction from the United States on trade, we face new challenges from within about the nature of the very order that has served us well in the past.

 What should New Zealand do?

In this context, what is to be done by a small, open, trade-dependent economy like New Zealand?

It needs to be recognised that this is not the first time the core assumptions of New Zealand’s trade policy have been challenged.

When Britain joined the European Economic Community in 1973 we faced the herculean task of diversifying our economy while hanging on tooth and nail to our access for butter and sheepmeat.  (How ironic that today we’re back again talking with Europe and Britain!)

In 1983 we sought to break out of a straightjacket of protectionism and economic befuddlement when we concluded CER with our best friends the Australians – that living and evolving agreement remains a bedrock of New Zealand economic success.

In 1993 when the outcome of the GATT Uruguay Round was in doubt, we made it known that New Zealand was open to the concept of high quality and comprehensive trade deals in the Asia Pacific region.

That ultimately led to FTAs with Singapore, Chile, P4, ASEAN, China and TPP – this sort of FTA coverage was unthinkable back in the day.

Today we see that New Zealand’s Plan A, focused largely if not exclusively around TPP, has gone off the boil and Plan B, is, to quote Prime Minister English, “tricky”.

What is Plan B for New Zealand?

It is certainly not a retreat into “fortress New Zealand” which makes no sense for a nation so dependent on trade and economic integration.

Nor is it a futile attempt to keep away from the controversial aspects of TPP and seek to negotiate more limited “market access only deals” – this merely denies the reality of value chains.

New Zealand after all is already largely a free market for others’ exports – most of them don’t see the need to reciprocate.

One key advantage today, which was not the case in 1973, 1983 or 1993, is that we have options.

Plan B is likely going to be a mix of things, both in the Asia Pacific region and beyond.

Among the latter are the emerging NZ/EU FTA and a possible post Brexit FTA with Britain.

Among the former are the initiative to upgrade our bilateral FTA with China and new initiatives like China’s “One Belt, One Road”, which we need to examine more deeply.

We certainly need to continue to seek a high quality, comprehensive and ambitious outcome from RCEP.

RCEP may not at present be an alternative to TPP, but is a useful initiative none the less, particularly for New Zealand if it delivers for us better access to Japan and India which we currently lack.

Then there the prospect of a TPP-like agreement amongst the remaining 11 members.

Australia, New Zealand and Singapore have expressed interest in exploring the options and Mexico has signalled that it wishes to explore bilateral agreements with the remaining members.

Japan, a key player, has recently said TPP is “meaningless” without the United States.

I think this Japanese reticence is entirely understandable and needs to be seen in the context of their critical security relationship with the United States.

On the other hand, Japan, like New Zealand and unlike other members, has already ratified TPP.

We need to let some quiet diplomacy proceed to see if the remaining 11 parties, or a sub-set of them, see merit in amending TPP to take account of US withdrawal.

This should include deciding whether or not to strip out of the agreement those things that were essentially US demands.

TPP (11) would not deliver the long sought-after FTA with the United States.

While China – under our shortly to be upgraded FTA – may have replaced the United States as our top trading partner, the US remains as important to us today as it was the day before the Presidential inauguration.

America is not just a major trade and investment partner – it is a powerhouse of innovation, entrepreneurship and business ideas.

New Zealand now has to find a way to engage and work constructively with the new Administration, even as we look to advance other options for growing and future-proofing our economy.

The way ahead is far from easy.

New Zealand has been seeking to obtain a bilateral FTA with the United States since the turn of the century.

Two problems have bedevilled that effort: first, a poor political and security relationship, which has now been fixed, thanks to efforts over years by certain politicians and diplomats on both sides, supported by leaders from business and the wider community gathered in the NZ US Council and its counterpart in the United States.

And second, on the economic front, the small size of the New Zealand economy and the perceived – if highly exaggerated – risk which our agricultural sector poses to American farmers.

This will make it difficult for New Zealand to get ahead in the FTA queue and may make a purely bilateral agreement ultimately no easier to negotiate than TPP.

While we simply do not know the detail of the new President’s trade policy, he is not likely to do us favours on agriculture and may seek to go beyond the TPP outcomes on issues like investment and intellectual property, especially medicines.

There is also the challenge of seeking improved visa access to enable New Zealand professionals to work temporarily in the US as many services exporters especially in the tech sector would wish.

To return to my favourite theme, there is much irony here – TPP’s lengthy negotiation was in part because the other 11 partners were seeking to counter the full extent of American ambition across a range of issues.

This was largely achieved: the final TPP text was a carefully structured consensus, which represented a balance of interests of all parties.

For New Zealand TPP delivered substantial benefits with little change to existing policies, even if we did not achieve all we hoped.

Conclusion

Will economic integration proceed with or without the United States?

The theme for my remarks this evening was framed as a question but perhaps it should have been an exclamation!

Economic integration driven by globalisation and commercial impetus is likely to proceed whether the United States ultimately decides to lead that process or not.

There may be holes in the boat, but it is not sinking – yet.

The question is more what sort of economic integration are we going to see and what will be the rule-making that shapes it.

New Zealand benefits from rules for trade and investment especially when we have had a hand in making them.

New Zealand does not have the luxury of closing off options before they have been fully explored.

We’ve been in this space before.

Today we are entering a new and uncertain period where old assumptions may no longer hold true, where old economic allies may not play the role we have become accustomed to.

This profound change requires fresh thinking from governments and stakeholders, together with perseverance and commitment, as we chart some new and potentially rough waters.

 



[1] Iain Murray: “Free Traders shouldn’t mourn the loss of the TPP” -https://fee.org/articles/free-traders-shouldnt-mourn-the-loss-of-the-tpp/

accessed 1 February 2017

[2] Peter A Petri et al: “The FTAAP Opportunity – a report to ABAC”, October 2015 – https://www2.abaconline.org/assets/2015/4%20Manila/FTAAP%20OPPORTUNITY%20(1).pdf accessed 1 February 2015

 

[5] John Hamre; “Memorandum to CSIS Trustees, Advisers and Friends”, 1 February 2017

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

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.