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

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

Back to the Future? New Zealand, the European Union and Britain

On 19 February Stephen spoke to the Hawke’s Bay Branch of the NZ Institute of International Affairs about New Zealand’s trade relationships with the European Union and Britain. Here is what he had to say:

 

ADDRESS TO THE HAWKE’S BAY BRANCH OF THE

NZ INSTITUTE OF INTERNATIONAL AFFAIRS

HAVELOCK NORTH, 19 FEBRUARY 2019 

STEPHEN JACOBI

EXECUTIVE DIRECTOR

NZ INTERNATIONAL BUSINESS FORUM

BACK TO THE FUTURE?  NEW ZEALAND, THE EUROPEAN UNION AND BRITAIN

 

Thanks to my friend Dick Grant for the kind invitation to speak to you today.

It’s great to be back in Hawke’s Bay again and talking with you about trade and economic opportunities, not this time with the United States, or China, or Japan, but with old friends in Europe.

So, are we no longer doing Asia, some of you may be tempted to ask?

I can assure you we most certainly are “doing Asia”, not just because of the enormous potential which is still on offer closer to home but because we live today in an increasingly complex and inter-dependent world, which requires us to pursue multiple opportunities at once and to mitigate risks across a range of markets.

The free trade agreement we are now pursuing with the European Union is part of that strategy, but it is not aimed at replacing markets in Asia but supplementing them and hopefully also giving rise to new productive investment which can help us develop new and profitable areas of business.

I’d like to examine this further with you by first looking more closely at the rationale for an FTA with the EU, then some of the potential problems, which might complicate the negotiation more than some politicians would like to admit, and finally and briefly, because I know you’ve recently heard from the British High Commissioner, at how Brexit might change our relationship with Britain.

Rationale of the NZ/EU FTA

 It’s true that the idea of an NZ EU FTA has a sort of “back to the future” feel about it.

I began my career over thirty years ago working on trade with Europe including four years at the NZ Embassy in Paris.

Much of that time New Zealand faced an uphill battle to secure ongoing butter and sheepmeat access to Britain which involved annual visits by NZ Prime Ministers and Ministers to Brussels.

This matter was resolved in 1995 in the Uruguay Round of multilateral trade negotiations – or at least we thought it was, as it now rears its head again in the context of Brexit.

I’ll talk about that a little more in a moment, but, for now, let’s just reflect that those annual negotiations coloured our relations with the EU for many years, when we saw each other as competitors rather than partners.

This tended to obscure both the continuing economic importance of Europe even as we sought as an urgent matter of national economic survival to diversify our markets.

It is supremely ironic that today we hear similar calls for diversification – away from Asia and back to Europe!

Despite all this, the 28 (for the time being) member states of the European Union constitute a510-million strong consumer market, ranking as our third-largest export destination, our second biggest supplier of imports, and our second-largest source of investment, with strong people-to-people linkages.

The rules governing our trade are however 30 years old and that puts our exporters at a distinct disadvantage especially when compared to competitors whose countries have concluded FTAs with the EU.

By the way it also puts EU exporters to New Zealand at a disadvantage as we have concluded FTAs with China and others which have resulted in a loss of market share for the EU especially in machinery, high tech manufacturing and a range of services.

More than one European diplomat in Wellington has lamented this sad state of affairs to me over the years – well, trade flows in both directions and this FTA negotiation is a chance to put that right.

New Zealand and Australia, which is negotiating separately with the EU, are almost the last cabs off the rank with the EU which has had a very active negotiating agenda over the years.

One wonders why it has taken so long – possibly because of lingering perceptions about being competitors rather than partners – but the good news is that the current EU leadership, as was made clear to the Prime Minister recently, sees this negotiation as a matter of priority.

Although it would be flattering to think so, this is not so much about the potential of our small domestic market – it has more to do with geo-politics and the opportunity this FTA gives to demonstrate openness to trade at a time when others are turning inwards, and to fashion some next generation commitments that can address today’s trade challenges.

For example, both New Zealand and the EU share a commitment to advancing “trade for all”: how, at a time of increasing scepticism about trade, how can we find ways of making trade work for people and addressing the specific needs of those groups who previously may have been left on the side-lines, including smaller business, women and in our case Maori.

Or reflecting new models of doing business, how can we address the needs of the digital economy, promoting cross border digital trade and e-commerce while respecting privacy and upholding cybersecurity?

That’s the rhetoric anyway but it does point to a more strategic context for this negotiation which will be helpful in Brussels when the rubber hits the road and we get down, as inevitably we will do, to the hard tacks of the negotiation.

From a New Zealand perspective, this negotiation is an opportunity also to promote and advance growing exports of high-quality food products including horticulture and wine, services such as tourism, education and creative sector exports, and well as high-tech and niche manufacturing.

The export boost at the New Zealand end is likely to be significant, with EU modelling suggesting the deal could add up to 0.5 percent to New Zealand’s GDP – a gain of up to $2 billion, giving rise to better jobs and living standards for New Zealanders.

But we should not see this simply in two way trade terms.

There is also huge scope to develop and deepen global value chains spanning from Europe through New Zealand into the Asia-Pacific incorporating the best of our complementary goods, services, capital, R&D, technology, ideas and innovation to service customers beyond both of our shores.

The EU is already a significant investor, although behind Australia, China and the United States – more can be done to boost the investment partnership and although the FTA will not at this stage include investment disciplines, it should help focus greater commercial attention on these wider possibilities.

Potential obstacles

 Both governments are on record as saying the FTA should be able to be concluded quickly.

That would indeed be an achievement – I have never seen an FTA concluded quickly, but I certainly hope we can avoid the long, drawn-out process associated with the Trans Pacific Partnership for example.

Trade agreements take ages to conclude because they are complex – even more so when a number of countries are involved.

In the case of the EU, the European Commission negotiates on behalf of the Union but behind them, every step of the way, sit the 28 (or maybe 27) member states which all have their own interests to protect and advance.

Some of those interests in the EU’s agricultural producing nations are not necessarily enthusiastic about the detail of what might be included in an FTA with New Zealand.

That’s why the preparatory steps towards the negotiation have literally taken years –  I visited Brussels in 2010 because we thought the negotiation was getting closer!

Hopefully these careful preparations will pay off because this negotiation will inevitably throw up some difficult issues.

Let me mention just three of them.

The first has to do with those tariff rate quotas for sheepmeat, beef and dairy products which are the legacy of New Zealand’s trade with Britain since colonial times and which after a generation of effort were finally settled and secured in the World Trade Organisation.

Brexit casts a big shadow over these important arrangements and the European Commission and the British Government have proposed that upon Brexit the TRQs will be split in half.

That poses a lot of difficulties for New Zealand exporters who have over a considerable period developed markets in both Britain and EU which they manage according to market trends and consumption patterns and in the light of flows of British products to the EU and European products to Britain.

Our exporters will lose considerable flexibility from the proposed splitting of the tariff rate quotas even though their right to export within the quota limits and rules has been guaranteed since 1995 – and I might add, effectively “bought and paid for” by New Zealand once already.

What’s more the European Commission and the British Government have in effect decided to proceed over the objections of New Zealand and other trading partners with similar arrangements – they risk opening up years of trade litigation in the WTO.

Now it has to be said these matters are not directly related to the FTA negotiation but they are very unhelpful for the effort to find a consensus around agricultural trade.

New Zealand for obvious reasons is wanting to expand on these tariff rate quotas but the EU and Britain are wanting to restrict them.

I’ll come back to this in a moment but New Zealand already paid a high price when Britain joined the European Community in 1973 – we are not minded to pay again now Britain wishes to leave.

A second issue also relates to agriculture.

The EU wishes New Zealand to adopt strict regulations about the way certain geographical names are used in international trade – not so much the use of names of wine regions like Champagne which is already restricted here, but names associated primarily with dairy products and some meat products.

This new strict regime would not just apply in New Zealand, but also to our exports into other markets.

Think feta cheese, mozzarella and parmesan.

New Zealand’s view is that these names have become generic rather than related to a certain geography.

Fonterra currently supplies large amounts of mozzarella cheese to China – every second pizza in China is covered with it, that’s a lot of pizza and a lot of cheese.

The EU has proposed the restriction of a large number of geographical indications which are presently being reviewed by our officials.

Some of them may not pose difficulties, others certainly will, but there is a principle at stake here and also significant commercial interests in trade with third countries.

The third potentially complex issue relates to digital trade.

Digital trade is the new black – all trade is rapidly becoming digital as goods are exchanged across e-commerce platforms and a wide variety of services are also delivered digitally to offshore consumers.

Think Alibaba for the former and as an example of the latter the way education or entertainment services are delivered by Internet.

This is a brave new world and there are distinctly different approaches to regulating issues like cross-border data flows, privacy and cybersecurity.

For example, on personal privacy, the EU approach, encapsulated in something called the General Data Protection Regulation (GDPR), is highly precautionary.

GDPR requires even the most basic data about EU citizens, such as an email address, to be protected to the nth degree by any business that collects it – even if that business is situated around the other side of the world.

This potentially entails high added business costs and hassle.

New Zealand and others grouped in the CPTPP prefer a lighter-handed and more finely-tuned approach that allows cross border data flows and hence is trade-friendly, while also protecting those important objectives of privacy and cybersecurity in a way that is actually fit for purpose.

The EU has already recognised that New Zealand has its own very high privacy standards and has granted us something called “data adequacy”.

But resolving our differences across the broad sweep of digital trade issues in the FTA will be complicated.

Given the rapidly evolving digital world, this is not an area that is hugely familiar to many in the business community and we will want to tread carefully.

It is precisely this sort of complexity which delays the conclusion of trade agreements despite the best intentions of governments.

The Brexit conundrum

I want to touch on Brexit only briefly and I most particularly don’t want to get drawn into the Brexit debate itself which is something that must be decided by the British people.

The first and most obvious point to make is that Britain, despite the changes of the last fifty years, remains very important to New Zealand in political, economic and cultural terms.

New Zealand has an interest in an orderlyBrexit if indeed Brexit is what the British people wish to achieve.

And the converse also applies – we face risks, most particularly to trade and New Zealand businesses established in the UK if Brexit is disorderly.

The Brexit deal negotiated by Prime Minister May would have allowed the current arrangements to remain in place as they are now through to the end of 2020, while the detail of the future trade relationship with the EU was worked out.

Without a departure deal, or other action being taken, Britain will crash out from the EU on 29 March.

No comfy status quo through to the end of 2020 – just the “cliff edge” on 29 March, as some of the commentators have put it.

This risks significant disruption to supply chains,  to customs clearance at British ports and quite likely a significant dent in the British economy.

The British Government is interested in a future FTA with New Zealand.

That is a welcome prospect from our point of view and as with the EU there are both opportunities and challenges from a future FTA.

If a hard Brexit occurs on 29 March, Britain is able and will indeed be eager to negotiate and implement a future FTA with New Zealand as soon as possible, bearing in mind of course these things are always more difficult than politicians would have you believe.

For as long however as Britain remains a member of the EU Customs Union, including under any transition arrangement or if the so-called backstop is initiated, it may negotiate but not implement an FTA.

For New Zealand therefore, under hard Brexit, we face potentially short to medium term pain with the prospect of a future FTA on offer.

Under soft Brexit we face short to medium term continuity but an extensive delay to realising our FTA ambitions.

Bear in mind too that as long as Britain remains a member of the EU and the Customs Union it remains bound by any FTA we negotiate with the EU.

Bets are on as to which is achieved first – complete Brexit or NZ’s FTA with the EU.

Conclusions

New Zealand’s relations with the European Union and Britain are long-standing, for the most part very warm and important in political, economic and cultural terms.

We have different approaches to agricultural trade and always have.  Our approach to digital trade also differs.

On many other things we see the world in similar ways: that hopefully will provide a basis to see beyond our differences and work constructively to overcome them.

That may take time – these things always do and I’ll be the first person to applaud an early conclusion.

I’m also holding my breath for an outcome to Brexit which avoids a shock to the system any more than is necessary.

Future free trade agreements with the EU and eventually with Britain, if these can be achieved, provide a means not to go back to the future, but to look forward into the 21stcentury and put the relationship with these old friends and partners on a new level.

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

 

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.

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

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

Is Auckland stuck in second gear with China?

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

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

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

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

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

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

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

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

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

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

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

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