Trade and the virus: united we stand

Economies need to fight the Covid-19 virus by standing together.

Desperate times call for desperate measures, but not stupid ones.  The world faces an unprecedented challenge to human health and to economic vitality.  Many economies including New Zealand are now resorting to extraordinary measures to check the spread of the virus, treat sufferers and deploy massive economic stimulus.  That is as it should be.  Borders need to close to travelers for a time. But some economies are resorting to protectionism.  That will make the fight against the virus even more complicated and is likely to delay the recovery once there is light at the end of the tunnel.

Protectionism – what’s new ?

Unfortunately, protectionism is nothing new and has been rising steadily since the Global Financial Crisis, and particularly over the last three years.  Economic openness had been fragile before the crisis struck and it seems that the virus has accelerated the trend.   Fifty governments are now limiting access to the essential tools to fight the pandemic, imposing export restrictions on medical equipment and drugs.  Many more are maintaining tariffs on even the most basic protective items such as soap and disinfectant.  The Global Trade Alert team at the University of St. Gallen  have pointed out that at least 16 export bans have been imposed since the beginning of this month alone.  Now, as Prof Simon Evenett says “beggar-thy-neighbour means sicken-thy-neighbour”.

What can be done ? 

Trade and open markets are crucial to getting through this global challenge, helping life-saving medical supplies to get to where they are needed most.  By contrast, going it alone is a recipe for disaster.  Commentators at ECIPE (European Centre for International Political Economy) have called for economies to “get rid of the restrictions and tariffs that delay the purchase of medical equipment and make them more expensive”.  They are right.  We need a lifting of export bans and a stand-still on new tariffs and elimination on these products as soon as possible – and for markets for other goods and services to stay open too, even as countries may be tempted to throw up barriers elsewhere in response to the difficult period that undoubtedly lies ahead.   We believe that economies in the Asia-Pacific should show global leadership here, staying true to our shared values of “equal partnership, shared responsibility, mutual respect, common interest and common benefit” as APEC Economic Leaders put it in their Bogor Declaration in 1994. 

Getting the engines started again

While we are in the midst of the struggle right now, thought will need to turn to how to restart the engines of trade and investment as soon as possible.  Forecasts are for a serious global recession, at least in the short term.  We will need the right tools to keep economies and communities going in the meanwhile, and ready to crank up again when the moment is right.  Protectionism is bad medicine.   First to hand instead should be openness and co-operation. Bodies such as APEC and the WTO, where countries can come together to lay the groundwork for coordinated global action, will be crucial to get things moving quickly.  New Zealand has a leadership role to play here as Chair of the WTO General Council and Chair of APEC in 2021.  We need to get back to the habit of mutually beneficial international co-operation.

For now, the world and its people are hurting. We wish all our readers the best of health and happiness wherever it can be found in these viral times.  Kia kaha ! (Be strong!) 

This post was prepared by Stephen Jacobi and Stephanie Honey.

New Zealand’s real challenge with China

Stephen stepped down from the role of Executive Director of the NZ China Council at the end of 2019. Here is his departing comment on the relationship, published in the NZ Herald on 20 December 2019.

No one can predict exactly what’s ahead for New Zealand’s relationship with China, but one thing is clear.  For the foreseeable future at least, China will become increasingly important to New Zealand.  To suggest otherwise is to ignore the role China now plays as a global power, and our place in an increasingly interconnected Asia Pacific. 

This presents us with tremendous opportunities, but also significant challenges.  To remain a truly valued and respected partner, we must find new ways to build relationship capital with China in areas beyond our traditional two-way trade in goods and services. 

Of course, trade remains the critical underpinning of New Zealand’s economic prosperity and trade with China will likely continue to grow.  Last year, we became China’s top food supplier globally, ahead of both Australia and the USA.  China wants to buy what New Zealand has to sell, and there is, fortunately, no reason to believe this will change any time soon. 

We need to continue to nurture our strengths in our key export sectors which generate the returns we need to fund economic and social development back home.   It’s harder than many commentators seem to realise to add value to the things we sell overseas, but genuine progress is being made.  The dairy industry, for example, is acutely aware of the need to diversify and much of what we sell, from cheese to infant formula, are premium products. 

The next generation of consumer offerings, particularly in the natural health sector and in the digital and creative space are now being established including by people who have the benefit of family and personal connections back in China.  As young people from both countries become more familiar with each other’s culture and language, this diversification in our trade will continue. 

The real risk to New Zealand’s relationship with China, in my opinion, comes less from having all our eggs in one Chinese basket, as some suggest, but rather that we focus so much on trade and the economic dimension that we underinvest in other, important areas.  

Three new areas of opportunity that New Zealand can leverage include cooperating with China’s Belt and Road Initiative (BRI), partnering on programmes to tackle the threat of climate change and greater cooperation in science and technology. 

BRI is China’s project to promote development-led growth between China and the rest of the world.  BRI is not just about infrastructure: it’s a framework for expanding connectivity amongst all the BRI participants.  We can’t build a physical bridge between China and New Zealand – we can find ways to help goods, services, people and capital move along the Belt and Road.

An initiative where New Zealand can add real value due to our unique geographic location and the expertise we have developed as a result.  Thanks to our existing ties with both China and South America, the concept of New Zealand as a ‘Southern Link’, or major conduit between the two for trade, travel and tourism is now gaining traction especially in moving e-commerce parcels between China and South America through Auckland.  

On climate change, Minister Shaw has spoken of the potential for the joint research agenda between China and New Zealand to become a global example for others to follow.  We have a huge advantage in renewable energy generation, an area in which China is investing aggressively.  China has expertise in electric vehicles. Greater cooperation to bring down emissions in both countries will give each of us a stake in solving a massive global problem.  

More broadly in science, the health sector has given us a template for how we can partner with China in new ways.  Recently, a group of health researchers and experts from Shandong province met with the Waitematā District Health Board to open lines of cooperation from hospital and nursing practices to data and technology application.  The commercialisation of local knowledge and research with Chinese partners is an area we’re only just beginning to explore. 

The more we expand the range and depth of these links with China, the more we can build up our relationship capital and help our Chinese friends see us as a more than just a provider of goods and services – things that one day they might choose to get elsewhere.

I am confident our relationship can also withstand our obvious differences on serious issues like human rights and regional security.  While in 2019 these differences have been thrown into sharp relief a number of times, New Zealand has not been silent on the values we hold.  The task ahead is to strengthen our capacity to make our independent voice heard including with big global players like China.  

The point is we can effectively de-risk the entire relationship by looking actively for new areas of cooperation.  This will not only help alleviate risk from a trade perspective:  importantly, it will also help us negotiate points of political difference more maturely and effectively.

This is New Zealand’s real challenge with China.  Maintaining our most important trading relationship by building strength and resilience into areas beyond trade.  This is the only way for New Zealand to see beyond its obvious differences with China to what can be achieved for the long-term benefit of both countries. 

Trade in 2019: somewhere over the rainbow

The sky is definitely not blue for the global trading system.  Are these the worst of times? Perhaps.  Can they get better – who knows?

In his annual report to the AGM of the NZ International Business Forum, Chair Malcolm Bailey writes: Around the world New Zealand exporters continue to undertake profitable business, somewhat against the odds, but the outlook for trade liberalisation is bleak.”

US team blows whistle on global trade referee

At the apex of widespread concern about the outlook for trade is the crisis in the World Trade Organisation’s Appellate Body.  The Economist says the Appellate Body  is one of those institutions that most people have never heard of, but which will be missed when it is gone”.  The Appellate Body hears appeals from the WTO’s trade dispute settlement system and the US Administration is blocking new appointments to the body to replace members who are retiring.  Come 10 December, the Appellate Body itself will no longer be operational and the whole system risks slowly grinding to a halt.  Some WTO members are trying to find a work-around, but there is little if any likelihood this can happen before the end of the year.

Does this matter?  Yes, it does.  While the US and other large economies might be able to foot it as the law of the jungle gradually prevails over trade law, smaller economies like New Zealand cannot.  Using the current dispute settlement system we have taken on some of the world’s most powerful economies and won. We face a looming dispute with the EU and post-Brexit Britain about our tariff rate quotas for sheepmeat, beef and dairy products.  We need the protection and rule of law that the WTO provides.

There is no argument that the dispute settlement system needs to be reformed.  Indeed New Zealand, through Ambassador David Walker in Geneva, is leading this work.  But blowing up the current system is not the answer. 

Trade wars are not so easy to win after all

Meanwhile the trade war rumbles on.  “Phase one” of a deal between the US and China is proving elusive. It now seems most unlikely that this sorry saga will be resolved before the end of the year. Other trade relationships may get caught up in the row. 

Markets remain unsettled by the prolonged nature of the dispute.  This has not led to global recession as some fear, but forecasts for global trade growth continue in the doldrums. 

Market disruption has affected New Zealand exports of horticultural products, wool and wood. And no relief has yet been granted to the US tariffs applied on “national security” grounds to the tiny NZ exports of steel and aluminium.

Is there any hope for trade left?

That New Zealand exporters continue to do well in the current environment is testament to their smart thinking and the resilience of our small, open economy.  There have even been some notable gains – a modest upgrade to the China FTA has been announced and an outcome to RCEP is on the cards, albeit for the time being without India.  It seems trade liberalisation may yet be possible for those who seriously put their mind to it.  

But time is running out at the WTO in Geneva.  A number of negotiations have been  mandated for conclusion by the end of the year, including fish subsidies and the long-standing moratorium on tariffs on electronic transmissions (eg streamed movies, e-books or even digitally-supplied services).  In advance of the next WTO Ministerial Meeting in Kazakhstan in June, work continues on other important negotiations including on e-commerce, agricultural domestic support and domestic regulation of services.

What’s a grown trade advocate to do?

Tradeworks was established by the members of the NZ International Business Forum to explain the background to trade and to advocate for more open global markets and better trade rules.  This past year along with other material we posted to the Tradeworks website 26 blogs and videos on current topics including the trade war, Brexit, the NZ/EU FTA negotiations, WTO, APEC and digital trade.  

Next year we will continue to pay close attention to the range of negotiations in which New Zealand is involved and we will work with our partners in New Zealand and around the world to create a more secure environment against which to do business.  We’ll also be thinking ahead to New Zealand’s chairing of APEC in 2021 and stepping up our work with the APEC Business Advisory Council.

No, these may not the best of times for trade, but somewhere, over the rainbow, we may yet find that pot of gold !

A mainstay in international trade

It’s nearly impossible to talk about New Zealand trade issues without mentioning the name of Stephen Jacobi.

A Chartered Member of the Institute of Directors, Stephen is a mainstay in the New Zealand international trade space. After working at the Department of Trade and Industry and the Ministry of Foreign Affairs and Trade for 25 years, he shifted to consulting and took on roles as head of major business councils. The Institute of Directors spoke with Stephen and in the article below he shares his insights into the rapidly changing global trading environment and what this means for New Zealand.

Read this profile prepared by the Institute of Directors.

NZ/China – is our next big earner in front of us?

 As published in the NZ Herald on 3 April 2019.

Next month, hard on the heels of the Prime Minister, Trade Minister David Parker sets off for China for the second Belt and Road Forum in Beijing.  He’ll join leaders from a large number of other countries keen to explore new opportunities under the biggest and most ambitious trade and development initiative we’ve seen for decades.

The timing is perfect.  Now the Prime Minister has visited, we are moving on from earlier uncertainty in the relationship.  We have the chance to take another step forward by demonstrating to our partners in China the unique value we can add to the Belt and Road Initiative.

What is that unique value going to be?  Clearly, we need big ideas to stand out.  We’re far removed from the trade routes most often associated with Belt and Road, linking China and other Asian countries and Asia and Europe.  As a developed economy we won’t be the recipient of concessionary finance for infrastructure.  We’re global traders, with other important relationships to nurture and a strong belief in the multilateral trading system and the rights of small economies in the international order.

But we may have a big and original idea, one that’s right in front of our noses.  It’s about making New Zealand a major and natural connection between China and South America – we’re calling it the Southern Link.

The numbers point to some serious opportunity.  Links between China and South America are booming, with plans to increase trade and investment significantly.  Putting New Zealand into this picture could mean increased passenger transit and airfreight, building on our expertise in trade and customs facilitation and supply chain connectivity.

It may sound idealistic.  We’re a geographically isolated country so we’ve never been seriously considered as a hub for global travel or trade.  It will come with major challenges.  But several factors play into our hand which make the possibility of a Southern Link a lot more realistic.

People movement between China and South America is increasing, but there are no direct flights. Broadly at the halfway point, New Zealand, whether Auckland or Christchurch, provides the shortest flight distance between certain Chinese and South American cities, including important routes between Shanghai, Guangzhou, Santiago, Buenos Aires and further afield.

A Southern Link could help assist and simplify e-commerce and traditional parcel post which criss-crosses the oceans between China and South America in ever-growing quantities.  In terms of tripartite cooperation, the idea also feeds into our goal of deepening our relationships in South America, building on CPTPP and the Pacific Alliance with Chile, Mexico and Peru.  While we have ample connectivity between China and New Zealand, boosting the connectivity between South America and New Zealand with added Chinese volume and capacity could lead to a host of new connections.

It shows the Belt and Road isn’t just about hitching your wagon to China’s star, either.  It doesn’t involve any surrender of sovereignty or raise the spectre of “debt diplomacy”.  What the initiative offers is the chance to build greater connections with other participating countries on a regional or even a global basis.

A conference to take place in Auckland on 25 June will explore the business case and value proposition for the Southern Link in more detail.  The NZ China Council and the Latin America NZ Business Council are teaming up with partners in China, Chile and Argentina to bring major players and decision-makers together.

For a century and a half, New Zealand has managed to turn its natural advantages into valuable export business.  We’ve overcome the tyranny of distance and transformed our economy into one that is outward looking and diverse.  Building the Southern Link represents yet another chance to turn the Kiwi number eight wire mentality into economic opportunity.

 

 

 

 

 

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.

Trade in 2018 – still looking for that star !

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

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

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

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

Trade restrictions, trade war, trade divorces

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

What’s next for trade?

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

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

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

Not out of the woods yet

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

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

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

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

(3)  RCEP = Regional Comprehensive Economic Partnership

 

Watch Stephen discuss the implications of the US/China trade war

Stephen and Liam Dann, NZ Herald, discuss the fall-out from the first shots fired in Trump’s trade war:

Making trade work better – remarks to London JustShare event

On 30 May 2018 Stephen spoke to an event organised by JustShare at St Mary-le-Bow church in the City of London.  The theme was how trade can be made to work better for people including women, indigenous people and sectors like small business.  Here is what he had to say:

 

Thank you JustShare and Fr George Bush at St Mary-Le-Bow for the kind introduction to join this distinguished panel for our discussion this evening.

I bring greetings from the other side of the world, from Aotearoa-New Zealand, where we too experience the need for a different kind of conversation about trade, one that puts people at the centre.

There is a much-loved saying of the Maori people – “He aha te mea nui i tea o?  He tangata, he tangata, he tangata” – what is the greatest thing in the world?  It is people, it is people, it is people”.

 For the longest time trade has mostly been a conversation about business, but, at a time when globalisation is under more intense scrutiny, it’s good to be talking about how trade can be made to work better for people.

It’s a particular pleasure for me too to be in this church of St Mary-Le-Bow – my mother was born within the sound of these bells:  while she lived more than half her life in New Zealand, the spirit of the Londoner was always part of her and so I dedicate what I have to say tonight to the memory of Florence Alice Bennett.

I’d like to introduce tonight’s discussion with some initial thoughts – around New Zealand’s approach to trade, around some of the criticisms we see of globalisation today and how we might begin to address these.

New Zealand’s approach to trade

It’s sometimes said that to live in New Zealand and to be involved in trade, you have to be an optimist.

Our small nation of just 5 million people, once described as the last bus stop on the planet, is a long way away from global markets, yet we produce more food than we can eat and the small scale of our market means we can’t manufacture all the products we need.

Much of the history of our trade policy has been about trying to overcome what we call the “tyranny of distance” and trying to get closer to our trading partners.

Of course, New Zealand has some advantages – we are a developed economy, albeit with the economic profile resembling a developing country with a high proportion of primary exports; we have well-educated people, stable and for the most part reliable government, some world-class production capabilities, not just in agriculture and other natural resources, but also in niche industries and the new and “weightless” economy – the creative sector especially – and a “can-do” attitude.

As a small economy, we rely more than larger ones on the rule of trade law and especially on institutions like the World Trade Organisation, where we have never lost a dispute settlement case but have challenged successfully the EU, the United States, Canada and Australia.

The current trade friction in the WTO between the United States and China and the delay in appointing judges to the WTO Appellate Body is a particular concern.

We have also pursued high quality, ambitious and comprehensive free trade agreements with many partners especially in the Asia Pacific region.

Amongst others, we have FTAs with China, Hong Kong and Chinese Taipei and the Comprehensive and Progressive Agreement on Trans Pacific Partnership – CPTPP – a veritable mouthful of an agreement – positions us well for the future, with new accessions to the fellowship of 11 existing partners, alas without the United States.

An FTA negotiation with the European Union is about to get underway and we have strong interest in a future FTA with Britain once the complex arrangements around leaving the Union have been sorted out.

New Zealand has long been attached to the concept of comprehensiveness – by which we mean including all products, agriculture as well as industrials, services as well as goods, investment as well as trade and the raft of other measures relevant to doing business in the 21st century.

Our newly elected Government is also keenly interested in the concept of progressive trade policy by which is meant trade to benefit everyone especially those who may not have participated fully in the past – women, small business, indigenous – and where the externalities of trade are better taken into account – environment, climate change, labour.

Our Government feels it can tell the story of trade better – three cheers for that – but that we also need a better story to tell.

Criticisms of globalisation

 Having a better story to tell has become more of a necessity in recent years.

Partly this is a response to public pressure – at the time of the signing of the first TPP (the one with the United States…) in Auckland in February 2016, the city was gridlocked by protestors.

While the protestors’ specific concerns were varied, they reflected world-wide unease about the pace of globalisation and a sense that the benefits had been poorly shared.

Trade is sometimes treated a little unfairly in these criticisms – technological advancement and the digital revolution have been greater drivers of productivity change and shifting patterns of employment – but it is certainly true that greater trade openness can lead to job losses in some sectors while job gains take time to realise.

But this is only part of the story – there is also the concern that by not including all sectors of the economy, some important gains of trade have not been realised.

Take women for example[1].

Women are certainly under-represented in export activity, and their participation tends to be concentrated in traditional sectors (agriculture, textiles and clothing) and a few service sectors (tourism, education and information communication technology services).

Globally, only one in five exporting firms are led by a woman.

Yet women-owned businesses which export report substantially higher sales than their non-exporting counterparts.

Exporting firms especially in developing countries also employ more women than non-exporters.

So, this under-representation matters, because we know that trade does bring benefits in terms of better jobs, higher wages and living standards and women appear to be missing out on these benefits.

Similar arguments could be made about the lack of inclusion of small business, as well as in New Zealand’s case the Maori economy valued at around $40 billion.

The point is that the argument is not just about individuals or sectors within an economy not sharing the globalisation dividend, it’s that the dividend is that much smaller because there is not better access and inclusion.

The more we can expand participation and inclusion, the better the results will be.

And this point is valid not just within economies but between economies as well.

As the World Bank tells us, trade has helped reduce by half the proportion of the global population living in extreme poverty (1990-2010)[2].

But in many parts of the world, and especially in Africa, the participation of countries in the global economy is hindered by production and export subsidies and continuing protectionism in the developed world.

That the global community could not find a way to conclude the WTO Doha Development Agenda, once dubbed “the development round” is a shocking indictment on all WTO members.

The risk of current global trade tension is that the needs of the poorest economies will once again be shoved to the back of the queue.

So, while we think about fostering greater inclusion at home, let’s also remember that the global environment has its particular and persisting forms of exclusion.

Finding solutions

What seems clear is that finding solutions to these problems, both local and global, will require some new thinking and a whole lot of us to do it!

This is not just something just for governments – it’s far too important for that!

Business has a role to play – not just because it is the right thing to do but because it is good for business.

Other stakeholder groups – including the church – have their own useful perspectives and need to be part of this conversation.

The good news is that business increasingly gets it.

I have the honour of serving as an Alternate Member of the  APEC Business Advisory Council, a group of business leaders who advise 21 Asia Pacific governments on the APEC agenda for sustainable and inclusive economic growth.

Making trade and globalisation work better is a theme that has come up repeatedly in recent years.

Last year we tasked the MBA programme at the USC Marshall School of Business in Los Angeles to survey business opinion in the region and come up with some recommendations.

The Marshall School team report[3], based on close to 500 interviews with business and thought leaders in APEC makes for useful reading.

The team found that whereas 94 percent of those interviewed expected cross-border trade in the region would increase there were fairly high levels of uncertainty around the political environment for this growth.

Over 90 percent supported the idea of better policy approaches to manage adverse impacts of globalisation – over a third went further to suggest more radical approaches to better inclusion and fairer distribution of benefits.

Amongst the possible approaches cited include:

  • Creating “springboards” rather than just focusing on safety nets – citizens need to be assisted for the jobs of tomorrow not just for those of today
  • Promoting synergistic eco-systems – uniting governments, business, unions, education providers and other stakeholders to enhance opportunities for young workers, women and small business owners
  • Enhancing job mobility – fostering labour market reforms and adopting policies and programmes to help people to move where new opportunities open up
  • Reinventing life-long education – fostering greater resilience amongst workers to adapt to changing technologies and working conditions
  • Bringing business into this dialogue, engaging organized labour and having more conversations about income redistribution were also considered important.

Many of these recommendations focus on policies and programmes to accompany trade liberalisation.

But trade liberalisation remains important too.

We know that protectionism penalises small businesses more than larger ones because they lack the resources to address barriers head on or to find work arounds.

Reducing trade barriers and putting in place better trade rules, particularly ones that target inclusion and take account of the externalities of trade, are also building blocks for a fairer, more inclusive trading system.

Or to put it another way, protectionism and inward looking policies are a sure fire way of restricting growth and inhibiting social progress.

With a new generation of trade agreements, we can target more effectively women, small business and indigenous people.

New Zealand is a nation of SMEs with Maori and women wanting “in” more than ever before

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.

 Smaller 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.

Red tape and compliance costs for meeting standards or regulatory requirements in overseas markets disproportionately affect smaller firms.

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

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.

I give this example not to praise the merits of CPTPP, but to illustrate that a new generation of FTAs, can be part of the solution to addressing inclusion and equity.

Conclusion

Kiwis are optimists when it comes to most things, trade included.

But if we are to make trade to work for people, we need both optimism and good ideas, to take us forward.

Tonight’s discussion is an excellent opportunity to engage all of you in that task and I’m delighted that a business guy from far away can share a perspective.

He aha te mea nui o te ao?  He tangata, he tangata, he tangata.



[1] Honey, Stephanie: Will CPTPP Offer Tangible Improvements for Women? – CIGI, Geneva, May 2018

 

[2] Lagarde, Christine: “Making Globalisation work for all” – address to Sylvia Ostry Lecture, Toronto, 13 September 2016

 

[3]APEC’s New Challenge – Inclusive growth througher smarter globalisation and technological progress” – a report by the USC Marshall School of Business, prepared for ABAC, November 2017