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.  

Address to the 47th One Stop Update for the Accountant in Business

In October 2020 Stephen spoke to accountants’ conferences in Christchurch and Wellington: here are his remarks:

GLOBAL ECONOMIC UPDATE: TRENDS, SHIFTS AND IMPACTS ON NEW ZEALAND’S BUSINESS LANDSCAPE

It’s good to be with you again at this 47h One Stop Update event. My thanks to Conferenz for having me back.

When I spoke to this group last year, I took on the role of a weather-forecaster.

As I looked over global landscape, with the shadow of the US/China trade war and a rising risk of protectionism, I issued a warning – cyclone approaching – but I definitely missed something.

This year I’d be better off being an epidemiologist.

What just happened ?

A small item in the Economist of 11 January read as follows:

“Almost 60 cases of pneumonia in the Chinese city of Wuhan were thought to be linked to a new strain of the virus that caused the SARS epidemic in 2002-03. Unlike then, no-one else has yet died from the disease.  The WHO is investigating…”

This global pandemic caught us unprepared and has left havoc in its wake.

All analyses, forecasts and outlooks are having to be revised – for most we may as well start over again from scratch because, let’s face it, 2020 has been brought to us by the letters W, T and F and we ain’t seen nothing like this before.

2020 has become a wasteland of hopes and dreams.

We haven’t previously seen – at least not since 1918 – such a devastating health impact and crippling effect on local economies.

We have not ever seen such a shock to the global economy or global supply chains, nor the fall out on formerly strong sectoral performers like tourism and international education. 

Curiously though there has been some, albeit faint, light on the horizon.

We’ve seen, despite some initial hesitations and some variation between sectors, markets for our key goods exports remain open and performing.

We’ve seen traditional industries and some key markets largely save the day when it comes to our economy.

We’ve seen too some strong policy actions on the part of our Government aimed at shoring up supply chains and continuing the task of keeping trade flowing.

The question for us now is what we can do to weather the continuing storm in this incredibly uncertain environment

Working out “What’s next” has never been easy and while I’m not here to predict the future, I’d like to unpack some of this further with you and I look forward to the conversation that will follow.

In the wasteland 

At the outset we should note the tragic loss of life and human potential which have been caused by the pandemic, which has yet to run its course around the world.

Words fail to express the sorrow at the loss of 25 fellow New Zealand citizens, let alone the over 1 million global citizens whose lives have been prematurely ended.

That such a tragedy could befall us at a time when the world is more advanced scientifically, more connected globally and more prosperous economically than at any other time in history will be something for historians, philosophers and economists to ponder in the decades to come.

The scarring of this sort of catastrophe cannot be measured just in accounting terms (if you’ll foregive the expression) – the human cost is simply incalculable.

The global economy is reeling.

Never before have all parts of the global economy suffered a shock at the same time.  Never before have both supply and demand been affected at once.

Most countries have been suddenly plunged into recession: the World Bank says that growth will contract by between 5.2 percent and 8 percent in 2020 and that the COVID-19 recession has seen the fastest, steepest downgrades in consensus growth projections among all economies since 1990[1].

While developed economies have certainly not been spared, developing economies have been hardest hit :  for over 25 years world poverty has been steadily declining but now, the World Bank says, the deadly combination of Covid and climate change could in 2020 drastically increase the number of people living in extreme poverty by 88 million to 115 million[2]

Here in New Zealand our economy declined by 12.2 percent in the last quarter.

Even with a strong rebound expected after the ending of the lockdown in Auckland, the economy is still expected to shrink significantly this year, perhaps by as much as 5.6 percent before rebounding in 2021.

Here as elsewhere some sectors have been hit harder than others –international tourism and education, hospitality and entertainment, the creative industries property, construction, manufacturing to name just a few.

Around the world the loss of air and sea-freight connections has seen supply chains tested to breaking point with many businesses looking now to re-shore some critical manufacturing operations.

The pandemic has caused major disruption to food production and distribution resulting in bottle-necks along the entire food supply chain.

Throughout the pandemic a high level of policy uncertainty has existed. 

The protectionist reflex, already present in the pre-Covid world, became initially even more manifest as economies looked to protect local supplies of essential health equipment, from sanitiser to PPE to soap and even food.

As the crisis began several economies placed restrictions on food exports, including eggs, rice and grains. 

Fortunately, by August most of these restrictions had been removed.

This was due to a lot of pressure from international organisations like the World Bank, the IMF, the WTO, G20 and APEC which did the job we needed them to do and called for markets to be kept open and trade flowing.

As bad as it has been, there have been one or two glimpses of light in the darkness.

In April this year the best estimate of the World Trade Organisation was that trade would drop by 12.9 percent in 2020: a new forecast suggests the drop will be more like 9.2 percent, with trade rebounding by 7 percent in 2021 but still remaining below the pre-crisis trend[3].

Interestingly for New Zealand, the trade decline in Asia is expected to be less – at 4.5 percent.

All these forecasts of course are predicated on the absence of a resurgence in the pandemic; as we see in the United States, Europe, South America and India, the worst may be far from over.

New Zealand’s trade has held up remarkably well also.

Our key exports of dairy, meat and fruit are all higher this year than last year, but exports of forestry and seafood are down. 

In the year to August 2020 New Zealand’s total annual exports were up 2.8 percent from the same period the previous year and total annual imports were down 8.2 percent[4].

Our traditional exports of agricultural and food products have been saving our bacon during this crisis and a big shout out needs to go to our farmers and exporters.

Key markets especially China have performed well and exports to Japan have been growing strongly as the market has opened under the Trans Pacific Partnership.

Generally speaking, our markets have remained open to us in a regulatory sense – again proving the worth of the free trade agreements which today cover over 64 percent of exports and eight out of our top ten markets.

Exporters have faced problems in terms of disruptions to supply chains including logistical delays at ports, time delays with courier services and bottlenecks in inspection and storage.

Some jurisdictions are putting in place new certification requirements and exporters need to keep in close touch with their customs agents and NZ officials about these in case they become unjustified non-tariff barriers to trade.

Several sectors are also facing critical shortages of skilled and unskilled labour including RSE workers to pick fruit, people required in meat processing plants or to service equipment in factories and seafarers to work on the fishing fleet – these shortages are going to become more acute as the border closure continues and could threaten the export-led recovery.

It has to be said that NZ Government agencies over this time have been noticeably attentive to exporters’ needs.  

The Government has adopted a Trade Recovery Strategy focusing on retooling exporter support, rebuilding the network of trade agreements and refreshing key relationships.

Regular updates have been held with business represenatives to maintain a check on the pulse of trade and any problems both onshore and offshore that have arisen.

At an early stage temporary steps were taken to ensure air routes remained open both for exports and imports[5] and a number of supply chain connectivity arrangements were negotiated with key overseas partners.

Sone problems remain to be addressed: several sectors are facing critical shortages of skilled and unskilled labour including RSE workers to pick fruit, people required in meat processing plants or to service equipment in factories and seafarers to work on the fishing fleet – these shortages are going to become more acute as the border closure continues and could threaten the export-led recovery.

With Covid there came a risk that some of our partners’ worst protectionist instincts might have been awakened – by and large this has been avoided, but that protectionist reflex has not gone away.

Geo-political tensions that were smouldering pre-Covid have broken out into more aggressive firefights – the US/China relationship for example is at a worse point today than at any other time in history.

The shadow of the US/China trade war is getting longer and darker.

It is very easy at tense moments like this for trade to get caught in the cross-fire, as Australian farmers have found out recently.

This requires care in handling sensitive international relationships – we are not out of the woods yet.

It is too early to tell yet how long the current uncertainty might last.

That is very cold comfort indeed for those in the international tourism and education sectors whose revenues will simply not recover fully until borders re-open we can travel freely again.

That will depend on the ability of governments around the world to improve their response to the pandemic and the availability and distribution of vaccines and therapies.

Progress is doubtless being made but not at the speed which is needed.

In the light of that uncertainty what can be done to weather the storm?

It is pretty clear that effective domestic policy action is a pre-requisite for addressing the pandemic, but equally clear that no country working on its own has all the solutions.

This is a time when we need governments and international institutions to come together as never before – our lives literally depend on it.

Unfortunately, it is a time when distrust between the major powers is at an all-time high.

Since pre-Covid we were worried that the larger economies could not demonstrate global economic leadership, it is hardly surprising that today they lack the wherewithal to show global political leadership.

Yet, out of adversity can come opportunity and there is today a new role for smaller players like New Zealand working with others to bring together coalitions to focus on what is needed to set the stage for an eventual re-opening of borders as health circumstances permit and get the global economy moving again.

This requires New Zealand to continue to pay close attention to international affairs – even during an election campaign and formation of a new government – and to navigate carefully between super-power rivalry.

It requires us to continue the hard and sometimes frustrating work of opening new markets as we are doing today through negotiations with the European Union, the United Kingdom, as well as partners in Asia and Latin America.

Those negotiations are not easy.

An FTA with the European Union would bring significant benefits, and enable us to address some new issues, but it is still not clear whether our European friends are prepared to open their market to us for agricultural products.

Similarly, the prospect of a potentially valuable FTA with post-Brexit Britain depends entirely on the outcome of Britain’s negotiations with the EU and the direction of Britain’s future trade policy.

A very large negotiation with Asian economies – the Regional Comprehensive Economic Partnership (RCEP) – alas excluding India – will deliver some important liberalisation amongst the fifteen partners but not so much for New Zealand which already has good arrangements in Asia.

A negotiation with the Pacific Alliance of Latin American economies is making only slow progress.

If the big wins from new agreements feel somewhat elusive right now, there is other work to be done.

We should continue to focus on updating existing arrangements that have served us well such as with China and ASEAN and expanding the CPTPP.

We should even now to start to look for new partners further afield in Africa and Eurasia.

We should think ahead to new types of arrangements which can address new business models particularly in the digital space.

Trade policy and free trade agreements are important – critically so as without market access and effective trade rules trade cannot take place – but they need to be accompanied by domestic policies that develop capacity, increase productivity and competitiveness and spur new investment, including from overseas.

We are now in time where we simply cannot afford bad policy and poor investment decisions.

We may have beaten the virus, not once but twice, but securing the economic recovery will be a test of our collective endeavour and political will to make the right decisions.

In that context I want to highlight a particular opportunity that is before us in 2021 when New Zealand will chair APEC and for the first time, we will chair it virtually.

APEC or Asia Pacific Economic Co-operation provides an opportunity for New Zealand to show political and economic leadership at a critical time for the economic recovery, to work co-operatively with some of the world’s largest economies and our major trading partners and to draw on a wealth of experience and ideas to find the best solutions to address the Asia Pacific region’s critical needs.

APEC has 21 member economies who are vital economic partners for New Zealand, normally taking around 73 percent of our exports and accounting for 70 percent of our imports. 

Fourteen of our top 20 export markets are APEC members, including the three largest economies in the world (the United States, China and Japan).  

APEC is not just the domain of governments – APEC’s business voice is provided by the APEC Business Advisory Council (ABAC).

Three ABAC Members from each economy provide recommendations direct to APEC’s Economic Leaders:  New Zealand’s ABAC Members are Rachel Taulelei, Malcolm Johns and Toni Moyes and I have the honour to advise them and lead the ABAC executive team next year.

ABAC has a role to play in focusing APEC on what is needed to rejuvenate economic activity throughout the Asia Pacific region including, critically at this time, a strong vision for the future of a highly inter-connected region, enhanced co-operation between economies and new openness to trade and investment.

Under the theme of Tāngata, Taio me te Taurikura, (People, Place and Prosperity) we’ll be developing new ideas about trade and investment, about renewable energy and responses to climate change, about Māori and indigenous business, about the digital economy and about open and inclusive financial systems.

To do this effectively, we will want to get the sort of input and perspectives from the New Zealand business community that will make the agenda practical and business-led.

You can find out more about our programme on the Trade Works website – www.tradeworks.org.nz.

The move to a virtual hosting format is certainly a challenge but it will hopefully also demonstrate New Zealand’s ability to innovate in the digital space. 

Above all we will want to host APEC and ABAC in 2021 in a way that is distinctively Aotearoa, which creates a legacy going forward and which enhances the success of NZ business in the region, no matter their size or scale.

APEC is a big opportunity but to really deliver in 2021 we have to focus on what is most important – building the economic recovery.

The fact of the matter is we don’t know what is ahead of us – other than that at some unknown time the immediate crisis will come to an end.

Covid has removed a lot of the old certainties and assumptions.

Stamping out the virus and rebuilding will likely take time.

We will need to keep doing what works – both at home and abroad.

We also need to prepare better for future challenges like this one – listening to both the epidemiologists and the weather forecasters and, critically, remaining open and continuing to look outwards.


[1] https://www.worldbank.org/en/news/feature/2020/06/08/the-global-economic-outlook-during-the-covid-19-pandemic-a-changed-world

[2] https://www.worldbank.org/en/news/feature/2020/10/07/global-action-urgently-needed-to-halt-historic-threats-to-poverty-reduction

[3] https://www.wto.org/english/news_e/pres20_e/pr862_e.htm

[4] https://www.stats.govt.nz/reports/new-zealand-now-overseas-trade-at-september-2020

[5] https://www.beehive.govt.nz/release/government-working-keep-air-freight-moving

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.

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

 

NZ/Pacific Alliance – game on!

Stephen welcomes the launch of FTA negotiations between NZ and the Pacific Alliance – see the NZIBF statement on the Tradeworks site here.

TPP needed now more than ever

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

Trading in an uncertain world – the post-TPP agenda for New Zealand and Asia

On 6 April 2017 Stephen addressed the World Services Group in Auckland – read his remarks on the Tradeworks website here.

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

“Friends with benefits – CER, SEM and TPP”

Stephen was pleased to address a business breakfast organised by the Australian Consulate-General, Austrade and the University of Sydney.  The subject was the economic relationship with Australia – here’s Stephen’s speech:

It’s a pleasure to be with you this morning and to join Professor Romalis from the University of Sydney and our friends at Austrade to talk about a critically important economic relationship for New Zealand.

For some years now I have played a role, on behalf of BusinessNZ, in helping co-ordinate the annual Australia New Zealand Leadership Forum, which brings together senior government, business and community representatives to foster and advance the relationship

The Leadership Forum has been meeting for twelve years now and will do so again later this year.

 The Leadership Forum has been described as a symbol of trans-Tasman “togetherness”.

 That “togetherness” is not just a sentimental thing – although sentiment is certainly part of the Anzac relationship.

 That “togetherness” is also about business, about the economic value both countries derive from their integration with one another, and increasingly, about the way in which both countries, together, can integrate with the rest of the world.

That’s why the relationship might also be described as “friends with benefits”:  this morning I’d like to talk about some of these benefits by focusing on the pillars of that economic togetherness – CER, SEM and TPP.

CER – a vision delivered

CER or to give its proper title ANZCERTA – the Australia New Zealand Closer Economic Relations and Trade Agreement – is more than an acronym.

CER is quite simply the world’s most comprehensive trade agreement, which was signed in 1983.

It’s hard to remember what the world looked like then, but the trans-Tasman environment was certainly not the space for by and large free movement of goods, services, investment and people it has become today.

CER had a profound impact on New Zealand because it was the first step towards the liberalisation of what had become a fortress economy marked by absurd import licensing, high tariffs and even agricultural subsidies.

Of course not everything was achieved on day one, but the pace quickened notably over the years so that the deadline for the removal of quantitative restrictions and tariffs was achieved five years earlier than scheduled.

And for those who are – quite rightly – concerned that the Trans Pacific Partnership (TPP) will not achieve complete free trade by the end of the implementation period, CER at the outset was no different with dairy products excluded at the beginning.

What we have seen quite clearly is that the CER agenda has evolved over time.

The first decade was taken up with a focus on manufactured goods and agriculture.

 This included:

  •  removal of tariffs and import licensing
  • elimination of anti-dumping
  • establishment of processes and institutions for conformity assessment and quality assurance
  • development of customs and quarantine cooperation
  • provisions on government procurement.

 The second and third decade moved to a period of deeper integration leading to the development of a concept we now know as  the Single Economic Market (SEM).

 This included:

  •  focus on services, business law harmonisation, regulatory reform, investment (CER Investment Protocol)
  • further market opening for goods
  • mutual recognition of goods standards (TTMRA)
  • single food safety regime
  • new rules of origin (introduced in 2009)
  • enhanced cooperation on biosecurity and customs.

 This period has given rise to a flourishing of the trade and economic relationship and the emergence of a truly Trans-Tasman economy and of trans-Tasman enterprises better able to participate in the global supply and value chains and networks that today mark the way business is being done around the world.

 The traffic hasn’t all been one way.

Australia has been New Zealand’s top trading partner since 1989 (apart from a brief period in 2014) but New Zealand is Australia’s fifth largest trading partner.

Australian companies are our largest foreign investors with a stock of around A$100 billion.

New Zealand is the largest source of in-bound visitors to Australia.

All this didn’t happen by accident.

CER has been the result of close collaboration between governments and business and supporting networks.

As it has evolved, it is important to note that CER’s model for integration is not based on “one size fits all” – rather than adopting identical and standards on both sides, the objective has been to achieve equality of outcomes so that ultimately it becomes as easy to do business in Auckland as it is in Sydney and vice versa.

It is also true that as CER has evolved and adapted to changing economic circumstances, making progress has become more difficult, not so much because the vision is no longer there, but because as economies become more integrated, attention turns to policies and regulations that have a lot to do with national sovereignty – the focus turns from at the border to behind the border.

That’s essentially the challenge of the SEM agenda.

Where to next with SEM?

SEM is the natural consequence of CER: the goal is to create a seamless environment for business across the Tasman.

 Closely connected to the SEM goal is the concept, first elaborated by Prime Ministers Rudd and Key, of “net trans-Tasman benefit”

This requires a move beyond a narrow calculation of national economic benefit on any single issue to a balanced benefits approach across the range of areas under consideration.

Some notable applications of this principle applied to the SEM include:

  •  signature of the Closer Economic Relations Investment Protocol (February 2011) – an important advance in the bilateral economic relationship aligning CER with other modern high quality free trade agreements and facilitating investment by reducing compliance costs for investors
  • Steps aimed at making travel across the Tasman a more “domestic-like” experience, including:
    • smartGate for arrivals and departures at Auckland, Wellington and Christchurch international airports;
    • biosecurity direct exit lanes at New Zealand international airports
    • the transfer of x-ray images of checked in baggage from Australian airports to MAF in New Zealand
    • joint studies looking at further streamlining of trans-Tasman travel.

One important issue which is raised regularly in the Leadership Forum but which thus far, shall we say, has “failed to capture the imagination of Australian officialdom” is the mutual recognition of imputation and franking credits.

This could provide a further boost to trans-Tasman investment well beyond the short term fiscal costs of implementation.

This one issue would do more to move the dial in the trans-Tasman economy than any other currently before us.

Both Governments remain committed to maintaining the momentum in the SEM and the broader integration project.

A report by the Joint Productivity Commissions in 2012 made some useful suggestions.

At their joint meeting earlier this year Prime Ministers Turnbull and Key urged business leaders to come up with some practical ideas.

Prime Minister Turnbull said they were looking for ideas to “help scrape the barnacles from the bottom of the boat”.

The Australia New Zealand Leadership Forum has collaboration underway in a number of sectoral areas – tourism, infrastructure, health technology, innovation and agri-business.

The aim is to come up with a series of recommendations which can be presented to the Leadership Forum later this year.

Certainly the future of CER and SEM is likely to be as much around areas of practically focused business collaboration in areas like innovation, infrastructure and investment, as in a continuing series of improvements to policy and regulation.

It is also increasingly apparent that the opportunity lies as much in third markets as it does between the two economies.

That’s where TPP comes in.

Realising the TPP opportunity

 New Zealand and Australia have been for a generation close partners in APEC established at the initiative of Prime Minister Hawke in 1989.

New Zealand and Australia are partners with ten other economies in TPP which was signed in Auckland in February and is now undergoing ratification.

New Zealand played an instrumental role in getting the TPP concept off the ground through the earlier P4 agreement concluded with Singapore, Brunei and Chile.

Australia and New Zealand had earlier explored a P5 concept with the United States, Singapore and Chile, which was overshadowed by the conclusion of the GATT Uruguay Round in 1993.

Australia and New Zealand are also working together with Asian economies in the Regional Comprehensive Economic Partnership (RCEP).

Whether through APEC, TPP, P4, P5or RCEP both countries are seeking to develop learnings from the CER experience which can be applied more widely.

It’s not an exaggeration to suggest that goal of economic integration has been trialled in CER, wholesaled in APEC and retailed in TPP.

TPP contains many CER innovations including the concept of regulatory coherence but develops them further and applies them in a wider setting.

Like CER over thirty years ago TPP is trying to address the needs of a new economy and of businesses operating in a new environment.

The goal is for a seamless economic space across the twelve, designed to lead to a broader vision of a Free Trade Area of the Asia Pacific (FTAAP) which links all 21 members of APEC.

TPP goes beyond trade in goods, to trade in services, investment, innovation, the digital economy, SME concerns and even into labour and the environment.

It is a future-facing agreement, which sets a new framework for trade and investment  – that is, if it can be successfully ratified by the 12 members.

TPP can come into force only if it is ratified by economies representing 85% of the GDP of the members.

For New Zealand the stakes are incredibly high – just as they were when we signed CER.

TPP represents 36% of global GDP and over 40% of our exports.

TPP will deliver free trade arrangements with the United States, Japan, Canada, Mexico and Peru with whom we do not have FTAs and extend our relationships with existing partners Malaysia and Viet Nam.

TPP has little direct impact on our existing relationships with Australia, Chile, Singapore or Brunei but adds some new commitments in specific areas.

All New Zealand export sectors stand to benefit from TPP – the impact on the beef, wine, horticulture, dairy, seafood and wood sectors is perhaps the greatest.

To implement TPP New Zealand has to make very few policy changes.

Only in the area of copyright are we required to make a major change – from 50 years after death of the author to 75 years – but this change brings us into line with Australia.

As in most other FTAs, New Zealand will provide commitments to foreign investors including investor state dispute settlement but these will not apply to Australia where the CER Investment Protocol will be the instrument governing investment between us.

Conclusion

 In signing and hopefully ratifying TPP all members are faced with a fundamental choice.

The choice is for regional economic integration, a seamless economic space and greater togetherness – which is good for business, good for security and good for development.

In CER New Zealanders and Australians have been able to see the benefits of that togetherness for over thirty years now.

CER was revolutionary at the outset but has been more evolutionary in successive stages particularly as we move to the SEM.

TPP is also revolutionary but will doubtless also in time adopt a more evolutionary path.

In that sense each new trade agreement builds on the last and makes way for the next as the economy expands and evolves under the changing nature of business.

There is something very positive about our CER togetherness.

Friends with benefits – who could want anything more?

Stephen was pleased to address a business breakfast organised by the Australian Consulate-General, Austrade and the University of Sydney.  The subject was the economic relationship with Australia – here’s Stephen’s speech: