Keeping friends close while building new bridges
The future of trade for New Zealand exporters was the broad topic of a presentation given at the Horticulture New Zealand conference by Clare Kelly, an expert in international trade negotiations.
She works for the Ministry of Foreign Affairs and Trade (MFAT) as the divisional manager of trade negotiations.
Kelly’s talk covered emerging shifts in today’s global trading environment, and the challenges MFAT sees for exporters. She outlined how our current trade policy is positioning exporters to minimise risk and maximise opportunities.
“You all know, as exporters, about the challenges we face in our trading environment,” she said.
There are historical challenges Kiwi exporters have always faced in terms of scale, distance from market and global supply chains. The high proportion of exports from the primary sector means a greater than normal exposure to trade barriers, because globally, agricultural products are some of the most protected.
“What is new over the last five to ten years is what I call a global rise in protectionist sentiment. That is at a national level, but it’s also something that’s coming up from the grass roots,” Kelly explained.
Many people today link globalisation with the problems they encounter with trade, and are blaming the later for the former. Kelly recalled a United States trade representative saying that trade is being blamed for situations it doesn’t create, and trade agreements are being expected to solve problems that they can’t solve. Globalisation is a factor trading nations such as New Zealand have to grapple with, she said.
“We’re also seeing the emergence of new barriers. Although the agricultural sector remains very protected, tariff barriers to our exports are dropping throughout the world. But as they’re decreasing, non-tariff barriers are becoming more important.
“Some of them come from the unintended consequences of laudable objectives such as sustainability and environmental protection, but certainly these (non-tariff barriers) are issues that have to be looked at now.”
Another phenomenon in recent years is the withdrawal of some key players in the international multilateral trading system from their traditional role as free
trade champions, she said.
“That is making it difficult in the World Trade Organisation (WTO) in particular, to advance trade liberalisation agendas. But it’s also creating some new opportunities as countries and regions look for partnerships in areas they
haven’t focused on before.”
Drawing on her recent experience in Mexico, she says that Mexico has an enormous trade dependence on the United States, with 70% of its exports going there. Recent events are
now forcing Mexico to look more broadly than it ever has before at diversifying its markets. It’s now extremely interested in the Asia-Pacific region, amongst others.
“In terms of New Zealand, we’re pretty well placed to face these challenges,” she said.
“We’ve been diversifying our markets for a long time and we are experienced traders. We’ve seen these challenges from some way off and have been preparing ourselves to meet them. In particular, the government’s reaction to our trading environment is the refreshed trade strategy – Trade Agenda 2030.
“Our previous trade policy strategy was in place for 20 years and it served us very well. But in light of the new environment we’re facing, the government decided it was time to refresh the trade strategy.
“It sets an overall specific target – an ambitious one – to have 90% of our goods trade covered by free trade agreements by 2030. It also outlines four shifts in the focus of New Zealand’s trade policy.”
Shift one is about intensifying free trade agreement (FTA) negotiations but also maximising the usefulness of existing FTAs, and making them as effective as possible to exporters.
“We have an ambitious negotiations agenda underway. It includes some new free trade agreements and upgrading existing trade agreements such as the China one, which has been such an obvious success,” she explained.
Negotiations workloads are high to ensure the agreements are as up-to-date, modern, state of the art, and useful as they possibly can be to New Zealand exporters.
Shift two focuses on non-tariff barriers. “This is digging down into the next level of barrier. Businesses are finding more and more that once you remove tariffs, they’re encountering other obstacles to access markets. Government agencies are ramping up their engagement on this.”
A ‘clearing house’ has been created for the collection of information regarding non-tariff barriers. The aim is to action these quickly. This entails working with businesses to get as much information about any barriers exporters are finding in markets, and working hard to resolve matters in good time.
Shift three is about acknowledging the growing and fundamental importance of services in digital trade to our entire economy, she said.
This is also extremely important to goods export, because goods export is underpinned by access to good, effective services.
Kelly said that transport and logistics are core parts of the export of New Zealand goods, so our trade policy has to ensure it does not ‘skimp’ on its attention to services trade. That includes advancing the conditions for the provision of services, and ensuring that government is doing everything possible to enable exporters to have access to the services required in order to trade effectively.
“More and more, we’re finding that goods trade is seeing the value in IP (intellectual property) which develops around methods of trading. Particularly in the logistics and systems developed to get their high-quality product to markets. We want to ensure that all these opportunities are being thoroughly explored.” Shift four is business facilitation – or what negotiators like to call ‘market access to market success’. This focuses on helping companies access the benefits that have been negotiated for them, and New Zealand Trade and Enterprise (NZTE) is extremely involved in this work.
“To give a concrete example in terms of MFAT, this is where we’re often able to help businesses in their markets. If you are in an embassy overseas, you are in a position to follow the domestic political and economic environment more closely than many other people are.
“Embassies have a particular role in interpreting the shifts and the benefits or negatives in markets, and are able to interpret and pass that information onto New Zealand business. It’s a particular area we’re involved in with the shift in trade policy,” she said.
Underpinning the four shifts is engagement, and this is a particular focus for MFAT.
“At the conclusion of the TPP (Trans-Pacific Partnership) there was considerable public reaction. That really reinforced for us, as a ministry, that we have to do more to step into the permission space around trade, given how important trade is for our economy.
“We have created a particular unit within my division, trade negotiations, to look at improving our engagement with civil society in particular. But there are also other parts of the public with whom we haven’t had the best engagement.
“MFAT has always been able to actively engage with the rest of government, agribusiness, and our big producers and exporters. I’d say where we’ve had less conspicuous success would be with civil society groups. Also perhaps we haven’t focused as we should have on small to medium enterprises, so that, going forward, is an area we’ll be looking to add real value to.”
A new trade policy engagement unit has also been created with specific mandates, and sits alongside MFAT’s regular engagement with business and outreach work on specific trade negotiations.
It’s taking time and energy, but is absolutely worth it, she stated. One practical step is the provision of forums to register any concerns and have frank conversations with exporters.
A number of negotiations are currently taking place, which takes considerable amounts of resourcing, she said.
One negotiation in which many people are extremely interested is the Trans-Pacific Partnership (TPP). Kelly clarified the current state of affairs with New Zealand’s involvement to date.
“We have an ambitious goal of having 90% our goods trade covered by free trade agreements by 2030. One of the important building blocks for achieving that is a TPP. When the Trump administration came into power at the beginning of the year, it signalled the United States’ withdrawal from that negotiation.
“Since then, the remaining 11 members have been exploring options for capturing the benefits of the agreement. There’s been a lot of discussion at senior officials level about this because while New Zealand’s preference is to have the United States in the TPP, there still remains a lot of value in the agreement without it – given that it will improve access for New Zealand exporters and lower tariffs in markets where we do not currently have free trade agreements, such as Canada, Mexico, Peru and very importantly, Japan,” she said.
The TPP, regardless of United States participation or not, continues to have an enormous amount of regional value, in that it creates a common set of rules amongst an important group of Asia-Pacific economies. These economies currently account for 31% of New Zealand’s goods exports.
“We are talking with our 10 counterparts about how to bring the agreement into effect in the short term and we hope to reach a decision on that by the end of this year.”
BREXIT, UK AND EU
Kelly also provided headlines on the Brexit, and negotiations with the United Kingdom (UK) and the European Union (EU).
The UK invoked Article 50 of the Treaty of the European Union on March 29, 2017 which started a two-year process for the withdrawal of the UK from the EU. “In the meantime, our trading arrangements which have served us so well, remain in place,” Kelly said reassuringly.
Negotiations are underway around the EU’s commitments under the WTO, and what that means for New Zealand.Work is being done on the impact of the UK’s withdrawal from the EU for New Zealand’s trade interests, consistent with WTO rules.
During the next 18 months, both the UK and the EU are negotiating over the terms of the exit.
“I’m sure you’ve been following the news of the various complexities of that. Our government is focused on two aspects arising from the Brexit.”
“One is to ensure our core trade and economic interests, as well as quality of access to both the EU’s 27 members and the UK are preserved through the WTO.
“At the same time, we’re also looking to the future of the New Zealand/United Kingdom trade relationship after the Brexit.
“In this regard, there have been discussions between our respective ministries of trade around moving on to free trade negotiations at the appropriate time. Our ministries have established a trade policy dialogue with the UK to cover existing and future trade relations.
“In parallel, we have a negotiation going on, that we were always pursuing, which was New Zealand’s bilateral negotiation with the EU.”
The relationship between New Zealand and the European Union is important, and Europe is a significant market.
“This is a goal which we’ve been working towards for over 20 years, finally we’ve got the EU to the point where they are willing to sit down and negotiate with us,” she explained.
In October 2015, both sets of leaders announced that we were working towards the launch of a free trade agreement. Joint scoping discussions on the parameters of a FTA were completed this March, and a scoping paper has been released by the government, which is designed to inform those who are interested, what we are setting out to achieve and the key issues in the negotiation.
“It’s a pretty high-level document and worth a read if you are interested in this. The EU is now working towards developing a mandate towards negotiations, and both we and the EU are very keen to get started this year.”
“We have an ambitious goal of having 90% our goods trade covered by free trade agreements by 2030. One of the important building blocks for achieving that is a TPP.”
The extent of the EU opportunity and why it’s so important to New Zealand is highlighted by some interesting facts. The EU is New Zealand’s third biggest trading partner and our third largest export destination. The two-way trade in services, valued at $20 million, is New Zealand’s largest source of imports.
“It’s also our second largest investment partner, and I think that’s something that we forget,” Kelly said.
“The EU is our most important science and innovation partner, which is an important connection – accounting for nearly 40% of our international research collaboration. So there’s much to play for in a free trade agreement with the EU.
“Not least, it would level the playing field for New Zealand exports in that market with our competitors inside the EU, and those that already have agreements with the EU.”
NEW DIRECTION – PACIFIC ALLIANCE
Clare Kelly also offered an indication of a new direction in terms of trade negotiation. It’s called the Pacific Alliance – it’s an agreement between four of the most outward-looking and dynamic economies of Latin America, namely, Mexico, Chile, Peru, and Colombia.
Latin America is a vast and varied region, and for years its countries have been trying to negotiate some form of economic and political integration through various efforts. One by one they’ve mostly rolled over and died, but it seems that the Alliance is different, she said.
The Alliance is an ambitious, fast-moving and outward-looking regional integration process that eventually looks to link Latin America to the Asia-Pacific region as the two most dynamic economic regions in the world, she said.
For example, amongst themselves, the agreement has eliminated 90% of tariffs, and tariffs on all but a small sub-set of agricultural products. The Pacific Alliance creates a massive market of 220 million people, which is bigger than Brazil.
“Given that we are constantly diversifying and wanting to do better in terms of other geographies, this is an important opportunity. Currently we only export $722 million to those countries so there’s room to grow.
“There’s also a geo-strategic reason why we’d like to take this opportunity. We’ve had a big focus on Asia in our foreign and trade policy over the last 30 years, which has been entirely appropriate and it’s worked really well.
“It’s time to look more at the Western Hemisphere. We see the Pacific Alliance as providing us with a sound platform to be able to lift our performance in the region. These countries are also looking to strengthen their democracies and they see New Zealand as one of the countries that can help in that process.”
The Alliance has attracted 52 observer states, and earlier this year it announced the creation of a new category of observer which it called an ‘associate member’. These are countries that the Alliance is inviting to launch trade negotiations that will enable them to end up with the status of associate member.
At a recent Presidential summit meeting in Colombia, the four presidents announced that four countries would be launching trade negotiations to become associate members: New Zealand, Australia, Singapore and Canada.
The next step is a meeting in September to agree on the terms of the negotiation.
New Zealand is of interest to the Alliance for a number of reasons, said Kelly.
“They know we’re ambitious and able to move quickly when we negotiate free trade agreements – that’s been their experience so far. They’re interested in whatever we can teach them about good governance, strong institutions, and improving democracy. They also have a strong interest in our agricultural technology, they see us as a country that they can cooperate with in that space.”
Kelly mentioned the WTO as something that MFAT’s trade negotiation division never forgets.
“It’s the organisation which eventually we hope all this multiplicity of regional and bilateral negotiations will come back to one day.
“It’s where these negotiations should be taking place between the 160 members of the WTO. But due to various challenges in the current global multilateral trading environment, there’s not a lot of consensus around using the WTO for advances and objectives at the moment.”
The dispute access mechanism of the WTO remains extremely important for a trading nation such as New Zealand. One recent example was New Zealand’s successful dispute with Indonesia on meat and horticultural products.
“Even though the negotiating mechanism of the WTO is not working as it should, the existence of the dispute settlement mechanism in a legally enforceable means to ensure that our exporting markets stick to their WTO obligations to provide us with access, is incredibly important and is something that New Zealand will always look to protect and support.”