No this is not a trade war!

 In this article I argue for calm when trade issues arise.

Some years ago I wrote “when elephants fight, it gets tough on the grass”.  That was when the United States under President George W Bush was blocking steel imports from New Zealand and other countries.  It took a World Trade Organisation case to sort that out eventually and in New Zealand’s favour.

This time steel is in the news again but it’s an anti-dumping complaint which our industry – or so it is alleged – is taking against steel imports from China.  The quality of imported steel has been a lot in the news but anti-dumping is not about quality – it’s about whether steel is sold under the market price in the sending country and – critically also – whether this has had an injurious effect on the domestic industry.

Dumping is notoriously difficult to prove but it is, quite legitimately, a remedy available to domestic industry when it feels it is subject to unfair competition. The processes for these complaints are defined in the WTO Anti-Dumping Code and are referenced in the NZ China FTA.  Under the FTA New Zealand is obliged to inform China when a properly constituted anti-dumping application is accepted.  There is no mystery about this – it is part of normal trade relations between countries operating within a recognised framework of international trade law.

But mystery there has been over the last week or so as the Chinese reaction to the possible New Zealand case and others launched by other countries has been the subject of speculation.  At times the mystery resembled a game of Cluedo – who spoke to whom in China and threatened a trade war?

No-one should expect the Chinese Government to have been thrilled to learn of the possibility of another anti-dumping action.  But the actions described – messages passed New Zealand exporters to China, possibly from industry rather than official sources – hardly seem to reflect a deliberate strategy with the aim of dissuading action by the New Zealand Government.  In any event the likelihood of retaliatory action has now been dismissed by the Chinese Ambassador.

There are some bigger lessons to be learnt from all this.  First, trade disputes may sometimes happen, particular when global supply and demand pressures are brought to bear.  Fortunately we have, through the WTO and our FTAs, the rules, protocols and processes to deal with them and to ensure that they do not escalate into trade wars.  That’s the chief advantage of trade agreements which detractors fail to grasp.  Rules are better, especially for smaller economies, than no rules at all.

The second lesson is that when it comes to dealing with China we need to realise that this is a big country with layers of officialdom and complex Government ties with industry, with multiple points of contact with New Zealand businesses.The random acts of individual officials do not necessarily reflect the considered policy of the Chinese Government.   This is not to say that New Zealand companies operating in China should not be alert to potential risks.  Indeed it is good to see that our leading exporters in China have people on the ground who can hear the jungle drums.  But these messages need to be seen in context.

The third lesson, and one we have learned with a number of large economies including the United States, the European Union, Indonesia and even our good friends Australia, is that we are not without protection from the WTO in the event trade disputes are not possible to solve at the bilateral level.  In these circumstances a clear head and a firm resolve are the best ways to meet challenges head on.

In the case of steel we will have to see where the anti-dumping process leads.  We should not let this cloud our judgment or our overriding interest in continuing to build a multi-faceted relationship with China which is based firmly on the rule of law and mutual respect.

 

 

 



 

 

“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:

 

TPP Unwrapped

Stephen is giving a number of addresses about the Trans Pacific Partnership (TPP) and the implications for New Zealand.  See here for an address he gave in Nelson to the NZ Institute for International Affairs on 5 April. Other addresses are available on the Tradeworks website – www.tradeworks.org.nz

 

Open letter to Andrew Little, Leader, Labour Party, on TPP

 

Andrew Little MP
Leader of the Labour Party
WELLINGTON

 

Dear Andrew

Thank you for clarifying your opposition to the Trans Pacific Partnership (TPP) on your recent blog post “My thoughts on the TPP” [1].  In the interests of open and respectful debate, I would like to comment on the key points of your argument:

Labour is a party of free trade. This isn’t a product of the last couple of high profile trade ministers in Labour governments. It goes back the full 80 years since we first formed a government. We have always championed the cause of better access to markets and free trade.

There can be no argument with this.  I myself (as a public servant) worked directly for former Trade Minister Jim Sutton and can attest to the tough debates with the Alliance Coalition partner about the merits of free trade.  It is precisely this long history of bipartisanship, which makes some of us, both inside and outside the party, so disappointed with your decision.

The National government has handled the negotiations of the TPPA appallingly. Seven years of total secrecy have aroused natural suspicion about its contents. The government did nothing to inform New Zealanders about the negotiations, the issues, progress – anything in fact. The 6000 pages of agreement were dumped in November last year and academics, NGOs and citizens have been left to work their way through the document and form their own conclusions.

People are invariably afraid of what they don’t know and the long and tortuous negotiating process was hopeless in this regard.  The 6000 pages of text were released, together with plain language descriptions, some three months ago, much earlier for example than other FTAs.  Of course NGOs and citizens have to come to their own assessment and this has been assisted by the release of the National Interest Analysis, which provides further insight. The proper place to come to judgments about all this is in the course of the ratification process.  This is exactly what has happened with other FTAs.

The deal is worth less to New Zealand than the government touted. Extending copyright will add costs to libraries and universities. The cost of pharmaceuticals to New Zealand will rise.

The analysis of TPP has been undertaken by the same officials who advised the previous Labour Government and may advise the next.  I suggest, but agree it is a matter of debate, that the additional costs to libraries and universities arising from the copyright change is marginal at best when compared to the other benefits.  (Some in the industry are already claiming the Government’s estimation of the costs of copyright are too high).  It is not clear that the cost of pharmaceuticals will rise since there is little change to Pharmac or to the patent and data protection regime for medicines: at the end of the day the costs to individual New Zealanders are determined by Pharmac and the Government.  The Government is on record as saying these costs will not rise.  You should hold them to account for that.

An email from an acquaintance of mine, a strong pro-free trader and pro-TPPAer, suggested I ‘take note’ of the Canadian trade minister’s statement on the agreement.  The minister, Chrystia Freeland, set out how she is dealing with the TPPA – meeting with unions, businesses, NGOs and holding town hall meetings. She called for a non-partisan debate. All of which I thought was a fantastic idea and was happy to note. Still, I did wonder why my friend hadn’t also sent it to the National Party asking them to take note.

If this was me (!), the point I was making was that the Canadian Government, while having reservations about an agreement signed by its predecessor, was proceeding to sign TPP and allow the ratification debate to continue.  As I understand it you don’t want the Government to sign TPP, which will prevent the ratification debate.  Your contributions this week have been far from non-partisan. The Government has already committed itself to a process of outreach and hui around the country to discuss TPP as a prelude to the Parliamentary discussion.

I have read a lot of the TPPA myself. The free trade aspects are naturally attractive, even though the deal on dairy is hopeless, meat is a little better and the rest amounts to not much considering it is an agreement covering 800 million consumers and 40 per cent of the world’s GDP. The benefit of genuine free trade agreements is the potential to create new markets that previously didn’t exist.

I agree that the dairy aspects of TPP are not as good as they could have been and as we had hoped.  But they are in the view of the negotiators and the dairy industry the best that could have been achieved in the circumstances.  Dairy still benefits more than any other sector from tariff cuts in key markets and the establishment of new tariff quotas.  The meat deal – specifically beef to Japan – is a significant market opening about which the industry has welcomed. Without this we will not be able to compete with Australia which already has an FTA with Japan. To call the rest ‘not much’ is a serious under-estimation – tariff reductions and/or elimination for horticultural products including kiwifruit, wine, wood products and seafood cannot so easily be dismissed. Addressing tariff and non-tariff barriers for manufactured products like health technologies and agricultural equipment is also significant.  This will result in the creation of new markets as you suggest.

Two things that disturb me are, first: the restriction on New Zealand legislating to regulate land sales to non-resident foreigners (Labour’s policy is to require them to build a new house, not buy an existing one, and we would be unable to do this under the TPPA)

Labour’s clearly signaled ‘bottom-line’ for TPP was that it should provide for restrictions on land sales to non-resident foreigners.  This is possible under TPP: a future Government could if it wished apply a stamp duty or other tax to restrict these sales.  Opinion is divided on whether an outright ban could be introduced, but there is a ready alternative to meet Labour’s policy position.

And secondly the requirement to allow other TPPA countries, their citizens (including corporates) to have a say on changes to many New Zealand laws and regulations…

Constraints on law-making and opening up our political system to overseas interests is unheard of.

 TPP does provide for our partners to make their views known on any measure, which may be introduced that could have an impact on trade.  But these provisions are far from ‘unheard of’.  They are already enshrined in the World Trade Organisation (WTO) and other FTAs concluded by Labour including the China FTA.  They are what make it possible for New Zealand to be consulted on changes affecting our exports to other markets such as subsidies under the Farm Bill or a discriminatory labeling or levy system.  Importantly these provisions retain the right of the Government to continue to regulate: the Government may have to listen to the views of trading partners but not necessarily heed them.  Bottom line is we do this already and have been doing so for years now.

For instance we would have to let Carlos Slim, the wealthy Mexican telecom company owner, vet any regulation of our telecommunications industry.

Not quite, the Government is required to publish notice of its proposed changes as it does in the Official Gazette, but not advise everyone personally. Mr Slim may offer comment if he wishes. The Government still decides.

As a social democratic party, we have always stood for effective parliamentary democracy. That means a system that is accountable only to those who elect its representatives and which serves all citizens, not the privileged and the elite.

There is no arguing with this either. In this case it is the democratically elected Government of the day which signs and ratifies treaties.  The Parliament is invited to consider and pass the legislation, which gives effect to the Treaty’s obligations.  TPP is no different in this respect from any other treaty whether in the field of human rights, climate change or labour.  A future Government may also leave TPP after due process albeit with the loss of benefits this would entail.

I hope you will consider these points.

Yours sincerely

Stephen Jacobi

 

TPP and Latin America

In a speech to the Latin American Business Council Stephen outlines how TPP will impact on the relationship between New Zealand and Latin America especially Chile, Mexico and Peru.

Read the speech here.

NZ and Japan – an added value relationship: the implications of TPP

In a speech to the Japan NZ Business Council in Tomakomai,Japan, Stephen outlines the implications of TPP for the Japan/NZ relationship.

Read the speech here.

TPP – where to from here (and how did we get here anyway?)

Read Stephen’s speech to the Wellington branch of the NZ Institute for International Affairs (NZIIA) here

As we look at where we have got to with TPP, we see a deal which is at last coming together in its final form.

To un-pack all this today and to help explain ‘where to from here’ I’d like to focus on three areas – why we set out on this journey, where we are now, and where things might take us in coming months.

 

Emerging trade agreements

Stephen spoke to the Primary Industry Summit in Wellington on 25 May.  Read his speech here.

I’d like to start today by asking the question – why do we seek negotiate trade agreements in the first place, especially when they seem so hard to I’ll then give you a sense of where I, as business observer, think some of the more current FTA negotiations are up to.

I’d also like to venture some thoughts about what all this might mean for the primary industries.

The case for trade

Stephen addresses the Nelson branch of the NZ Institute of International Affairs here.

I’m here to make the case for trade but in some respects there is no need to make such a case here in Nelson.

This region lives by its exports of seafood, wood, horticulture, wine, meat and dairy products.

Can there really be any debate about trade in a place like this?

Is there still hope for TPP?

Stephen assesses the prospects for the Trans Pacific Partnership in 2015 here.

The big question for trade policy watchers as we start a new year is whether the Trans Pacific Partnership (TPP) negotiations might be concluded.  Last year I thought negotiations could be concluded by April.  I was wrong.  This year I can make no such prediction, save one – if TPP is not finished soon, we may need to move on to something else.