Article

Trade in the worst of the worst times

Read Stephen’s end of year round up for the Trade Works website:

“Out with the old, and in with the new”. The old saying seems to have particular relevance for 2020, a veritable annus horribilis for the global economy.  2021 can’t come fast enough, but while the vaccine portends better times to come,  many parts of the world remain in crisis as the year closes.

Trade plows through rough water

The Covid 19 virus caught the world unprepared and has had incalculable effects on people’s health and livelihoods:  too many precious lives have been lost and economies have been devastated.  Trade has been heavily disrupted as supply chains continue to come under pressure.  Protectionism was quick to rear its ugly head at an early stage as even supplies of much-needed medical equipment were blocked, but eventually wiser heads prevailed and markets remained largely open and trade continued to flow.   The WTO reports that global trade volumes bounced back in the third quarter from a deep slump in the second quarter – up 11.6 percent, as compared to – 12.7%, but still 5.6 % lower than the same time the previous year.

New Zealand’s trade has held up remarkably well this year, with some variations between products.  The trade surplus is the highest it has been for twenty years or more: imports are down sharply while exports are around 4.4% lower than this time last year (which was a bumper year for trade).  There is little doubt that trade saved New Zealand’s economic bacon in 2020, but constraints at ports and a growing lack of shipping are beginning to have a major effect.

Trade policy did not stand still 

It’s hard to keep a good trade policy down, and New Zealand negotiators pivoted very successfully during the initial impact of the crisis to negotiate a series of supply chain resilience agreements.  International organisations played their part too with the WTO, G20 and APEC all making supportive statements.  Some significant agreements were concluded this year including the Digital Economy Partnership Agreement (DEPA)signed virtually – of course – in June and the Regional Comprehensive Economic Partnership (RCEP) signed in November.  

Other negotiations are ongoing.  The NZ/EU FTA is the biggest of these with eight rounds of negotiations having been held, but the NZ/UK FTA is gathering speed, albeit in the uncertain environment created by Brexitwhich, as ever, is going down the wire.  Much attention was focused early in the year on an apparent truce in the trade war between the US and China,  

but this conflict has by no means gone away and may not be entirely resolved by an incoming Biden Administration.  New Zealand’s own relationship with China has been in the spotlight this year:  the NZ/China FTA upgrade has been completed but awaits signature.  As the year closes the World Trade Organisation – that great lifeboat for international trade – remains without a Director-General and without an Appellate Body, rendering the task of settling trade disputes that much more problematic. 

Enter APEC !

In this highly contested and uncertain environment, New Zealand takes the chair of APEC in 2021 and will do so virtually.  This is no mean feat for our Prime Minister, Ministers and senior officials but it gives us a chance to help lead the emergence from Covid and prepare the ground for the economic recovery.  Business is gearing up too as New Zealand also chairs the APEC Business Advisory Council (ABAC).   This will be major preoccupation for us in 2021 as ABAC provides an important opportunity to socialise important ideas and concepts and build alignment with other business leaders and groups around the region.  Global co-operation and collaboration have been critical during the pandemic and will be no less so during the recovery.

Keeping on keeping on 

Throughout this year it has been important to continue our work in support of trade and investment and to point out to New Zealanders (and anyone else listening) the importance of openness and integration.  We published 18 blogs on current issues, posted a raft of information to the Trade Works site and to our social media channels and updated the look and feel of the website as well as the content, with a view to the work we have to do with  ABAC next year.  The New Zealand election gave us the opportunity to publish background on the trade positions of the major parties.  We look forward to engaging with the new Government in the period ahead.

As the curtain falls on the most difficult year many of us have ever experienced, all the team at Trade Works extend our best wishes to all our readers for a restful holiday period and for a happier, healthier and more secure trading year in 2021.

What does a Biden Presidency mean for New Zealand?

In this article published by The Spinoff, Stephen assesses the impact of a Biden Presidency on New Zealand’s trade interests.

The American people have spoken.  America’s “better angels” have prevailed.  We all hope for better times ahead, but, while there is ample scope to expand co-operation with a Biden Administration in the White House, the future is unlikely to be all plain sailing.

The state of the relationship

The importance of the United States in international affairs is such that It is in New Zealand’s interest to co-operate with whoever occupies the White House.  The NZ/US relationship has continued to expand over the last four years. High level contacts have continued, although the Prime Minister herself has not yet made the customary visit to Washington. Security and defence relations are closer now than at any other time.  New Zealand and the US continue to be “very, very, very good friends.”  

Trade has flourished, even in the absence of an FTA.  Consumer demand for our products probably increased as a result of the economic stimulus flowing from the Trump Administration’s tax cuts.  Even Covid-19 has not made a dent in the trade figures.  True, the Administration disappointed us (and this writer in particular) on the Trans Pacific Partnership (TPP),  and continues to apply tariffs on our steel and aluminium exports, but with the KIWI Act it gave us visas for investors and entrepreneurs.  

New Zealand has not been immune from the fallout from the US/China trade war which has cast a shadow over the global economy.  We have also been concerned about US policies towards the World Trade Organisation (WTO), as well as multilateralism more generally, including, most importantly, withdrawal from the Paris Agreement on Climate Change.  The approach to  Iran and North Korea has been perplexing.  Co-operation in science, technology and education have all advanced, and our space co-operation has literally blasted off.  

Those annoying tariffs aside, the relationship is in good shape and ready for further development.

What do we want at this point?

There are a number of things that the Ardern Government might like to see from the US under a Biden Presidency, including:

  • Re-engagement in multilateral institutions, including the Paris Agreement and the WTO
  • Reduction of tension with China and re-alignment with Asia more generally
  • Partnership on global political, economic and environmental issues affecting us both 
  • Openness towards trade and investment.

Some of these seem assured given the Biden/Harris policy pronouncements; others will take time to eventuate: the processes required to get a new Administration up and running are labyrinthine by New Zealand standards.  It will take time to re-orient the ship of American policy.  New Zealand will need to take its turn, although our chairing of APEC in 2021 will give us some useful early opportunities to engage.

What about trade ?

We should not expect any early moves towards joining the Comprehensive and Progressive Agreement on Trans Pacific Partnership (CPTPP).   There are competing views on trade and President-elect Biden cannot be expected to want to disturb the Sandersistas in his party, at least not straight-away.

A bilateral FTA is no more likely in our view.  We have been down this path before, with both Republican and Democrat Administrations.  Somehow, no matter the quality of our friendship, we can never get the right conditions to allow an FTA to proceed.  That’s because we offer the Americans only a small market and our asks of the US are not without consequence domestically.  You only have to look at the importance of Wisconsin in the recent election to see that no favours affecting American dairy farmers are likely to be done for New Zealand.   The whole strategy with TPP – now CPTPP – was that the prospect of a bigger deal might serve to outweigh these domestic concerns.  As it turned out, TPP delivered only marginal agricultural market access and the Obama Administration was unable to get it passed through Congress.

The US may take a less aggressive stance on the WTO and New Zealand and the US could well co-operate on reforms aimed at improving the dispute settlement system rather than seeking to undermine it.  A return of US global leadership on trade is to be welcomed by New Zealand.  The multilateral trading system was after all one which the US helped build. 

Another area we can expect some welcome evolution in policy is in relation to China.  Although the Trump Administration’s tariffs have undeniably hurt America more than China, the perception of China as a strategic competitor cuts across the political divide.  We would expect a Biden Administration to continue to contest China’s economic, political and technological rise, but the policy could be pursued in a less confrontational way. That may not however lessen demands being made of very good friends like New Zealand.

What’s next ?

New Zealand and the United States have many shared interests, but America remains very divided, in the grip of a health and economic crisis and the “America first” movement has not gone away.  New Zealand has long pursued an independent foreign policy, but we value opportunities to work together. The relationship will continue to require close attention in the years ahead from Prime Minister Ardern, Foreign Minister Mahuta and Trade Minister O’Connor.  

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 !

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.

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

 

PM’s Europe visit – Stephen comments on Radio NZ website

Radio NZ asked Stephen to comment on PM Jacinda Ardern’s visit to London – read what he said here.

Earlier Stephen commented on the PM’s stops in Paris and Berlin – see here.

Finally Radio NZ asked Stephen to comment on Foreign Minister Winston Peters’ proposal for a Commonwealth Free Trade Agreement – not as unlikely as it sounds, see here.

A Trade Policy for Our Times (reprise)

Read Stephen’s assessment of the Trade Agenda 2030 released by Prime Minister Bill English on 24 March 2017 – here.

Further information on Trade Agenda 2030 can be found here.

We cannot afford short term thinking with China says Stephen Jacobi

Read Stephen’s article in the NZ Herald calling for NZ/China relations to be more diverse and sustainable – here