NZ China Council releases Belt and Road report

On 1 May 2018 Stephen joined in launching the NZ China Council’s report “Belt and Road Initiative – A Strategic Pathway”, prepared by PwC.  Full details can be found at www.beltandroad.co.nz. Here’s what Stephen had to say at the launch:

It is a pleasure to be able to join in launching this report today and I want to add my thanks to Colum Rice and the PwC team, as well as our other partners who have worked together to help build this strategic pathway for New Zealand’s engagement in the Belt and Road Initiative.

I’m sure you all know already that BRI is aimed at achieving development-led growth along ancient trade routes linking China across Eurasia to Europe, as well as more modern trade routes including from China across the South Pacific to New Zealand and on to Latin America.

What is not so well known is how a distant nation like New Zealand can co-operate with this initiative and how it can add value to New Zealand’s relationship with China and other countries along the Belt and Road.

That is the purpose of this report.

In March 2017, New Zealand and China signed a Memorandum of Arrangement (MoA) under which the two countries undertook to explore ways of working together in relation to BRI.

In August 2017, the Council commissioned PwC under the leadership of Colum Rice to prepare a report which placed BRI in context for New Zealand and set out a range of options to enhance connectivity with China and other BRI countries.

The options outlined in the report are not intended to be exhaustive but an illustrative indication of what could be developed under this new framework.

Our intention is to begin a discussion with New Zealand stakeholders about BRI and we are starting this discussion today.

Having spent some time now thinking about the place of New Zealand in BRI, it seems to me that the best place to begin is not with a map of trade routes.

There are multiple maps in circulation about BRI and most of them manage not to include New Zealand!

Our report does have a map, as you see here, a rather complicated one, with New Zealand and the Pacific firmly on it.

For New Zealand, the starting point for any discussion of Belt and Road really has to be the positive relationship between China and New Zealand which has grown significantly in recent years and more particularly since the conclusion of our groundbreaking FTA.

As we consider the future of the relationship, it is clear to us at the NZ China Council that the future is not likely to be a continuation of the past.

For New Zealand, the strategic context for our consideration of BRI is how we can maintain the momentum of the relationship into the future.

Today New Zealand is facing greater competition than ever for attention in China.

Australia has negotiated a very good FTA, Chile has already upgraded its FTA, European states are making a huge push to develop people-to-people links, and countries in Europe, Asia and even Latin America are already staking out their roles in the BRI.

Our relationship with China is not just about trade and investment and nor is BRI.

What is clear is that BRI is at the centre of Chinese policy and at the very core of China’s country to country relationships.

BRI matters to China and therefore, if we want to continue to expand our relationship, it has to matter to New Zealand as well.

At the time of writing some 69 countries and organisations had identified that they wish to co-operate with China in BRI – the number has continued to expand to more than 80 today.

BRI is not without its sceptics and critics so we also need to be alert to the implications of a fundamentally bilateral initiative, with China at the centre, for the region’s wider trade and economic architecture, as well as any reputational or geo-strategic risks that might arise.

Our report identifies these risks and we have considered them in relation to the specific opportunities we have presented for further discussion.

It is really up to each country to decide for itself the extent to which they choose to engage with BRI.

Having already signaled a willingness to consider engaging with BRI, we in New Zealand must now do the work to determine the depth and breadth of our engagement, consistent with our interests and our values.

BRI is dynamic and continues to evolve as the priorities and interests of China and other Belt and Road countries change.

This changing nature of BRI means it can be challenging to define clearly the opportunities it presents and hence the need for guidance such as that offered in this report.

BRI is perhaps best known for its massive infrastructure construction programme, but it is important to note, as you see here, that infrastructure is only one of five policy priorities under BRI.

It is in the area of connectivity that the Council believes BRI could provide a significant opportunity for New Zealand.

This does not mean that there will not be opportunities in the infrastructure space, both in New Zealand and offshore, but the emphasis in this report is how we can leverage BRI to expand and enhance connectivity with China and other countries along the Belt and Road.

As well as putting BRI in context for New Zealand the report identifies a number of opportunities that can be further developed in a BRI framework.

As noted earlier these opportunities are not designed to be exhaustive but indicative of the range of projects that could be developed.

PwC engaged with our stakeholder group, to capture, first of all, a range of actionable options by identifying a wide variety of initiatives that New Zealand could pursue.

PwC then helped us narrow down the suite of possible options by assessing them against six key criteria:

  • Alignment with New Zealand’s comparative advantage
  • Value to New Zealand – with a weighting to those options which had broader application in BRI
  • Ease of implementation
  • Potential to interest our Chinese partners
  • Benefits vs costs
  • Reputational risk

The outcome of this “diverge/converge” process is eight specific opportunities grouped under four categories

Each of these has been assessed against the criteria and presents, we believe, a viable opportunity for New Zealand to engage with BRI.

All the categories are in connectivity space:

  • trade facilitation (incorporating biosecurity, customs clearance and supply chain hubbing)
  • New Zealand as a conduit to Latin America
  • innovation; and
  • the creative sector

Trade facilitation could leverage our world class biosecurity regime, expertise in cross border movement of goods, and experience in working across jurisdictions in supply chain hubs.

Our geographic location and existing trade and tourism relationships with China and South America position us well as a natural connection between the two.

In the innovation space, New Zealand can utilise its strong capability in science and technology and advance our existing collaboration and promote greater commercialization of ideas.

For the creative sector, opportunities exist to use creative strengths in web solutions, gaming and other properties to expand people to people links, cultural awareness, understanding and exchange.

These opportunities can be implemented by the two governments, agencies, cities or the private sector.

Under each category the report provides some further ideas that could be explored, representing different levels of engagement.

Some might well ask – aren’t these things we are doing already and the answer is yes!

But BRI is about leverage – how can we focus the attention of partners in China on these opportunities and open up new sources of support and funding by placing existing work streams in a BRI framework.

Going forward, we are particularly keen to engage with any groups interested to be part of the conversation and thinking about how they can be involved in BRI.

We are planning a series of discussions around the country with interested stakeholders – a Christchurch event will be held on 17 May and events in other centres will follow from July.

This morning we are also launching a dedicated Belt and Road page on the Council website which can serve as a repository for our report and New Zealand-related information and commentary about BRI.

The page – which will enable you to download the report itself – can be accessed from our website at www.nzchinacouncil.com or directly from www.beltandroad.co.nz.

The web page will help deepen New Zealanders’ understanding of BRI and inform the discussions we will be having around the country.

BRI represents an opportunity for New Zealand.

It is an opportunity which is up to us to grab hold of or leave to others.

We need to move forward aware of both opportunities and risks and determine how it serves our national interest to be involved.

The China Council hopes this report is the beginning of a national conversation and looks forward to pursuing that conversation with the Government and interested groups around New Zealand

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.

CPTPP: Six ways and more to help #SME Leap

Stephen addressed the SME Leap Summit in Auckland on 31 January.  Here’s what he had to say: 

It’s great to be here and thank you Tenby Powell for the invitation and for your leadership in putting this event together.

Tenby has not only shown considerable foresight in arranging this LEAP Summit the day before the meeting of the APEC Business Advisory Council (ABAC) here in Auckland, but also an uncanny sense of timing in that it takes place just days after the announcement of the conclusion of CPTPP in Tokyo.

CPTPP – that’s the Comprehensive and Progressive Agreement on Trans Pacific Partnership – quite mouthful, and, as I’ll explain, quite an opportunity!

Even for someone like me who has been following CPTPP closely, the announcement came as something of surprise – a real Hallelujah moment for those of us working for better market access and better trade rules in the region.

Today I’d like to cover three things:

  • first, I’d like to talk about SMEs and international trade
  • then, a closer look at what’s in CPTPP for SMEs
  • and lastly, I’d like to suggest what we – you and me – need to be doing now to prepare to “leap” at the CPTPP opportunity.

I’m speaking myself as the owner of a small consulting business among whose clients are a number of enterprises grouped in the NZ International Business Forum – known more by our Tradeworks campaign which seeks to explain trade to New Zealanders (please sign up to our website www.tradeworks.org.nz and follow us on Facebook, Twitter, LinkedIn and Youtube).

SMEs and trade: what’s the problem?

Let me start with something I can’t stress enough –  the benefits of trade are not just for larger companies.

As a small, open economy, New Zealand makes its living largely through trade and is mostly made up of small and medium-sized businesses.

It follows that if New Zealand wants to take a new giant leap forward into the global economy, it must do so off the back of SMEs.

But there is a disconnect – the statistics on SMEs and trade tell us that  80% of New Zealand MSMEs have never generated overseas income.[1]

This isn’t just a New Zealand thing: in economies around the Asia-Pacific region, smaller firms contribute on average around half of GDP, but less than a third of direct exports, and in some economies only a tiny fraction of that.[2]

Research shows that small firms which export employ more people, for higher wages; enjoy higher productivity; are more innovative; and expand faster.[3]

So, what can we do to ensure that SMEs are more successful at trade?

 Surveys by MBIE[4] and others in New Zealand reveal that small firms say they find it hard to get hold of market intelligence and the information they need about trade requirements.

They often struggle to access foreign distribution networks and customers.

There’s clearly an information deficit, and a need to build deeper and broader international connections.

Many New Zealand SMEs also cite distance from markets as a barrier and services such as logistics and transport tend to cost proportionately more for SMEs.

SMEs are also particularly impacted by the domestic business environment, typically much more so than larger firms.

That’s an ongoing challenge I know a lot of speakers will cover today.

But there’s a cross-border element too: red tape and compliance costs for meeting standards or regulatory requirements in overseas markets disproportionately affect small firms.

SMEs trying to operate across a lot of different markets can face the extra challenge of having to meet a myriad of diverse and often conflicting or unjustified requirements for the same product or service.

In the jargon we call these “non-tariff barriers or NTBs – we need to do something about those too.

Finally, access to finance is seen a major impediment to SME participation in Asia-Pacific trade.

More positively recent MBIE survey reports that 94% of SMEs say they can access debt financing on acceptable terms, and 88% can access acceptable equity finance.

But specific trade-related financing may be a different story.

Now, if these trade barriers hurt small firms more than bigger firms, then removing obstacles to trade in turn should also benefit SMEs more than larger firms.[5]

What’s CPTPP got to do with it?  

Here’s the thing – CPTPP, and other high quality trade agreements like it, can offer SMEs a real springboard into trade.

CPTPP linking eleven economies in the Asia Pacific region does this in at least six important ways.

 First, CPTPP cuts tariffs and improves market access, especially in the four economies with which we do not already have free trade arrangements –Japan, Canada, Mexico and Peru (that’s over $4 billion of trade in goods and over $1 billion trade in services).

Some improvements are also made to existing FTAs with Malaysia and Viet Nam.

Over time tariffs are reduced and eliminated on New Zealand’s key export products – dairy, meat, horticulture, wood, wine, seafood, manufactured products like agricultural machinery and medical devices.

You can find the detail by using MFAT’s tariff finder at https://tariff-finder.fta.govt.nz.

This reduces the cost of doing business – costs which weigh even more heavily on SMEs than larger enterprises.

Second, CPTPP includes disciplines to address those non tariff barriers.

Identifying and addressing NTBs is never easy, but CPTPP helps this process by providing ways to limit the impact of technical barriers to trade like rules, regulations and standards and promoting sound regulatory practices.

Much of this draws on practices and experience we have become used to in CER and APEC.

MFAT has established a new web portal for companies reporting specific problems to have these investigated and addressed – check this out at  https://tradebarriers.govt.nz – it’s a great new resource for exporters.

Third, CPTPP addresses not just goods but services– a range of measures to open services markets and are designed to assist our services exporters in sectors like consultancy, education and information technology.

Services are distinct from goods – they have been described as anything you can’t drop on your foot – but they represent an increasingly important part of international trade and are often directly connected with the export of goods.

CPTPP provides for better conditions for services trade including the right to establish operations in other markets, to obtain visas to visit the market and to engage in cross border e-commerce.

For those of you look to add value in smart, innovative, knowledge-heavy sectors such as consultancy, technical services, transport, logistics, distribution or computer services and IT, CTPP should generate some great new opportunities in overseas markets.

Fourth, CPTPP includes the first-ever commitments in a trade agreement to promote an open digital economy.

E-commerce and digitally-provided services have meant that SMEs can engage across borders in a way that could not have been imagined even a decade ago.

Smaller firms can connect directly, immediately and at low cost with any number of customers offshore.

Restrictions on cross-border data flows, expensive Customs processing for the small shipments that are typical with e-commerce, and restrictive rules on e-payments, can all undermine the benefits of digital transformation.

CPTPP puts in place new rules to ensure that the lifeblood of the digital economy – data flows – continue to circulate freely subject to reasonable safeguards for privacy and consumer protection.

CPTPP requires governments to secure the necessary tools for trade in the digital environment by enabling e-payments and allowing express delivery services.

CPTPP prevents governments from requiring firms to store customer details in local data centres, so-called ‘forced data localisation’;  it prohibits customs duties on electronic transmissions.

All of this is aimed at ensuring SMEs can sell services and goods to customers around the world without needing to invest in local infrastructure or rely on expensive or insecure payment systems.

Fifth, CPTPP contains specific commitments designed to make it easier for SMEs to do business in the region.   

Remember that one of the major impediments that SMEs have identified is a lack of information about markets and trade requirements.

CPTPP governments have agreed to set up websites containing information about all aspects of the agreement – whether SMEs are looking for tariff rates, or Customs regulations or procedures, or information about technical standards or regulatory requirements, or relevant business, tax or employment regulations.

A working group will meet regularly to share experiences on best practice to support SME exporters, to identify ways to assist SMEs to take advantage of the new commercial opportunities generated by the agreement, and to develop capacity-building programmes, training and other forms of assistance, for example around trade financing.

All of this should help to mean that, where the other chapters of CPTPP open the door for SMEs to trade, it is also enabling those small firms to walk through that door with confidence.

Sixth, the beauty of CPTPP is that it sets up a framework of rules designed to strip out exactly those trade costs and other hurdles that make life so difficult for SMEs in the international arena.

Those rules take in all aspects of doing business, including, for example, the right to sell into government procurement in CPTPP economies, as well as the need to promote good environmental practices and decent labour standards.

CPTPP is about creating the best possible conditions for modern models of business and trade, such as so-called “global value chains”.

In a global value chain, production is fragmented across multiple markets, using inputs of goods and services from a range of different countries, sourced from large and small firms, before the finished output gets to the final consumer.

New Zealand SMEs, where they do participate in trade, report that they mostly sell goods or services for use by other businesses in those global value chains, rather than directly to end consumers.   And that’s typical around the region for SMEs.

Because CPTPP streamlines the rules for trade across markets, it gives small firms the opportunity not only to step onto the international ladder, but also to move up the rungs as they develop capability, efficiency and innovation thanks to the connections they make and the skills they gain from working in value chains.

Other GVC-friendly elements of the CPTPP that will help SME goods producers include new rules that try to smooth out Customs procedures, facilitate goods trade, and provide frameworks for developing consistent, evidence-based technical rules, biosecurity and food safety measures.

All of these new rules will help to reduce the costs of doing business and address non-tariff barriers for SMEs, in whichever sector they may be operating.

So what do we do now?

 I’ve outlined six ways in which CPTPP could work to assist SMEs, but it will not happen by magic.

CPTPP still needs to be signed and ratified but there are things we collectively – and most particularly you, with our help – need to be doing to get ready.

First, be informed.

That applies particularly to business with interests in Japan, Mexico, Canada and Peru who need to familiarize themselves with the market access outcome.

Check out MFAT website (www.mfat.org.nz); there will be seminars etc after 8 March signing – watch out for those.

Get the business organisations you belong put out info to members and organize discussions with MFAT, NZTE, MBIE and other agencies.

Second, organize.

Work in clusters to figure out the change CPTPP could make to your sector.

Review your strategic plan and business plan, particularly from the perspective of how you can link more closely to global value chains.

Third, influence.

The ratification process in New Zealand will also require submissions to the Parliamentary Select Committee – think about participating in the public debate that will invariably come back about the benefits of the agreement.

Engage with officials – when it comes to the implementation of this agreement, and the negotiation of others in the pipeline, they need real-word stories of challenges, problems and successes in offshore markets.

Report the problems you are facing in offshore markets.

Only business knows how business is done; only SME owners know the challenges they face.

I am certainly hopeful that the discussions you will be having around this Summit will put in place the structures required to enable more effective sharing of information between SMEs and officials.

Conclusion

I said at the beginning: the benefits are not just for the bigger companies.

CPTPP has been conceived with SMEs in mind and its success for New Zealand will ultimately depend on SMEs making use of those six benefits I have outlined.

I’d like to leave you with another simple idea: it’s that all of us in this room, and New Zealand SMEs across the board, need to raise our eyes above the New Zealand horizon and look more ambitiously outward to the world beyond and particularly the Asia Pacific region.

The Asia-Pacific will be the centre of economic gravity for at least all of our lifetimes, and very probably for the lifetimes of our children too.

In New Zealand we are blessed with fantastic commercial prospects as well as the potential to develop our skills, productivity and competitiveness: now also we have the means through CPTPP to engage more easily and seamlessly across borders.

New Zealand SMEs should seize those opportunities – and trade agreements like CPTPP give us a perfect leaping-off point to do so.



[1] MBIE Small Business Sector Report 2014

[3] WTO (2016), ‘Levelling the Trading Field for SMEs’, World Trade Report 2016, page 75; see https://www.wto.org/english/res_e/booksp_e/world_trade_report16_e.pdf

[4] Ministry of Business, Innovation and Employment, Small Business Sector Report, 2014, page 47.  See also WTO (2016), page 77.

[5] WTO (2016), pages 78-106.

The importance of trade for New Zealand

 

Watch Stephen discuss the importance of trade negotiations and update on latest developments with the Rural Exchange team.

Business welcomes new look TPP

Read Stephen’s press release on behalf of the NZ International Business Forum welcoming the Comprehensive and Progressive for Trans Pacific Partnership (CPTPP):

11 November 2017 – The New Zealand International Business Forum (NZIBF) congratulates Prime Minister Jacinda Ardern, Trade Minister David Parker and their officials on concluding an agreement with eleven partners on the core elements of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

“Our new Government has succeeded with CPTPP, not only in preserving essential elements of the original agreement, particularly in terms of improved market access to Japan, Canada and other markets, but has also softened its impact in areas that were previously contentious in New Zealand” said NZIBF Executive Director Stephen Jacobi from DaNang, Viet Nam.

Mr Jacobi said that the crucial market access package of TPP remains unchanged, but other elements including intellectual property (copyright and patents) had been suspended. The Government had also successfully satisfied its concerns related to the purchase of residential property by overseas tax residents and investor state dispute settlement (ISDS).

“This is a major achievement – CPTPP is essentially a new agreement which recognises that aspects of the previous agreement had been problematic for some in civil society, while not diminishing the economic impact and the new opportunities created for New Zealand exporters.”

Mr Jacobi noted that the Treaty of Waitangi had once again been fully protected, along with the right to regulate in the national interest in areas like the environment and public health. He drew attention to clauses in the agreement seeking to upholding environment and labour standards and address fishing subsidies. He hoped that all parties in the New Zealand Parliament could support the new look TPP.

“With CPTPP we have an opportunity not only to restore the bipartisan consensus around trade, but also to move on to thinking more deeply about how this agreement and others in the pipeline can be made to work better for people. The business community certainly hopes this can be a new basis for a better discussion about trade and its impacts in New Zealand and we look forward to working with the Government to complete the remaining work and to bring the agreement into force as soon as possible”.

What is China’s New Silk Road ?

Watch Stephen explain China’s “Belt and Road” Initiative to Eric Young on TV3′s AM Show on 11 July 2017

 

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.

TPP needed now more than ever

On behalf of the NZ International Business Forum Stephen welcomes the announcement that the remaining 11 members of the Trans Pacific Partnership (TPP) are planning to continue to implement TPP.  See his 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.