China-US trade war poses a risk for NZ

New Zealand is keeping its head down as the two elephants of world trade embark on the opening skirmishes of a potential trade war. China is hugely important to the New Zealand economy. So is the United States, for both trade and security reasons.

The last thing New Zealand wants — along with multiple trading partners of both major powers — is to be manoeuvred into a situation where it is forced to choose.

But Trade Minister David Parker is sure of one thing — that the importance of the Comprehensive Progressive Trans Pacific Partnership (CPTPP) which the Labour-led Coalition Government signed up to earlier this month has now increased, providing an alternative rules-based agreement for countries that want to work together “rather than put up barriers”.

Parker now wants to add the upgrade of New Zealand’s existing free trade agreement with China to the notches on NZ’s trade belt.

“In terms of the negotiations some good progress has been made,” he says.

He also affirms if the upgrade goes to plan it will be a modern, “inclusive” agreement with a strong focus on the environment, competition policy, e-commerce and the expansion of the services trade. He notes that over the decade since the original FTA was signed by the previous Labour Government in 2008, “a lot has obviously changed”.

Not only has China made significant domestic reforms but it has widened its trade agenda to embrace environmental standards and e-commerce.

Let’s talk about China — E4-5

Parker says the proposed e-commerce chapter in the upgrade is of particular importance to New Zealand.

“Ecommerce pushes the benefits of trade down to smaller organisations,” he says.

“You don’t have to be a large multinational with offices in lots of countries to trade when you are doing so through ecommerce.”

Fonterra has led a push to have “safeguards“— higher tariffs which kick in once certain volume thresholds are exceeded for NZ dairy exports to China — made a key negotiating outcome.

But NZ dairy exporters face a risk that powerful Chinese ministries might seek to renegotiate provisions in the 2008 agreement, which is currently set to result in all dairy tariffs reduced to zero by 2024.

Parker says the negotiations are not at the point where trade-offs have emerged.

But Todd McClay, who was National’s Trade Minister, cautions that China can be expected to push for better access for investment and for labour.

“The revised TPP has doubled the OIO investment threshold from $100m to $200m for China under a most- favoured-nation clause, but this has already been banked,” says McClay, now National’s foreign affairs and trade spokesman.

“Given the importance of China to the economy you can expect this will be a hot topic for negotiation.”

Parker says the focus on non-tariff barriers ( NTBs) established by the previous Government will remain a priority.

But he said NTBs are an important focus not just with China but also with other economies, including Europe.

Parker also makes the point that if New Zealand is to increase its export growth to markets (not just China) it needs to grow new points of comparative advantage with the world.

The Government plans a new national interest criteria for foreign direct investment in NZ. “That policy work will commence after we have done the more pressing investment screening issues going around housing and the like,” says Parker.

He stresses the criteria will not be directed at any one country, but that New Zealand should have criteria that go beyond the current reliance on issues like character and financial competence.