How horticulture will benefit from the CPTPP
The salvaging of a successful agreement in the form of the verbally challenging Comprehensive Progressive Trans Pacific Partnership (CPTPP) is an achievement worth toasting.
But precisely what has been salvaged and what have we lost as a result of the high profile United States departure from the Trans-Pacific Partnership (TPP)?
And what are New Zealand horticultural growers and exporters likely to be delivered from what some commentators are calling a gamechanger, and how could it improve the future trading environment?
There are seven reasons why the CPTPP provides a good deal for the NZ horticulture export sector
• The multi-lateral trade system and agreements are under attack from protectionist ideologies, the best example being the current US administration with a misguided strategy to use tariffs as a tool to gain leverage. For its neighbours and others in the Pacific region, to progress the CPTPP deal strengthens the case for the multilateral rules based system and counters the protectionists.
• As other economies in the region see their near neighbours prospering from improved trading conditions they will likely be more willing to become part of the CPTPP group. South Korea, Indonesia, Thailand are three countries that have already expressed a strategic interest in becoming part of a CPTPP agreement.
• It has broad coverage with the full range of fresh, frozen and processed horticulture products currently exported by NZ being included.
• Tariffs on this range of products exported to the CPTPP countries will be removed (most at entry into force, or entirely within a maximum
of 10 years), saving approximately $48 million (on a Cif basis) annually. Many of NZ’s competitors have tariff advantages into the CPTPP markets that have put NZ exporters at a competitive disadvantage.
• It contains formal structures, based on World Trade Organisation (WTO) principles to address and deal with non-tariff barriers.
• With NZ’s 4.7m population providing a very low level of attraction, our chances of completing bilateral trade deals with the large economies of Japan and Mexico were slim at best, so NZ needs to be part of this deal.
• For individual growers and exporters to invest with confidence in their business it is vital that they have access to markets. From a wider perspective of NZ’s future economic prosperity and societal development providing opportunity for future generations, good quality access to markets is critical and this CPTPP deal helps secure that.
The TPP group of twelve grew from the seed of the four Pacific Rim countries (NZ, Chile, Singapore and Brunei) which completed a formal trade agreement in 2005. Subsequent enlargement by a further eight countries resulted in the twelve Asia-Pacific Rim countries together accounting for 36 percent of the world’s economy. NZ has existing Free Trade Agreements (FTAs) with a number of member countries including the ASEAN Australia New Zealand FTA (AANZFTA), CER with Australia and FTAs with Malaysia and Singapore.
The TPP agreement was signed by the 12 parties in February 2016, but had not been ratified by a sufficient number of members for it to enter into force prior to the surprise election result in the US in November 2016. One of the first actions of the new administration upon taking office in January 2017, was to withdraw the US from the TPP deal. The remaining 11 members of the deal saw the strategic and economic importance in continuing with the agreement, subject to some amendments.
Over the next 12 months, agreement was reached on the suspension of 22 items from the original TPP agreement and the CPTPP was signed in Chile in March this year. The inclusion of the term progressive is a nod to critics of the TPP that it was too focused on reducing costs for businesses.
• includes commitments to safeguard high labour and environmental standards across the Asia-Pacific region;
• preserves NZ's right to make laws to protect its people and environment in the public interest (i.e. narrowed the scope of Investor State Dispute Settlement (ISDS) provisions from the earlier TPP);
• upholds the Treaty of Waitangi; and
• protects the Pharmac model to ensure NZ has ongoing access to pharmaceticals.
As with the original TPP the CPTPP directly lowers the costs of accessing international markets through lower tariffs, creating the potential to increase net returns. This benefits the member countries and the wider regional economies, encouraging growth, diversification and investment opportunities.
The TPP agreement was signed by the 12 parties in February 2016, but had not been ratified by a sufficient number of members for it to enter into force prior to the surprise election result in the US in November 2016.
In a NZ horticulture context the CPTPP will result in eight of our top 10 markets being under FTAs of one form or another – the two exceptions being the EU (our number one market) and the US (our sixth largest market). The key factor in CPTPP for horticulture is the inclusion of Japan. >
Annual NZ horticulture exports to Japan have ranged from $446 to $573m in the past four years and NZ has good access for a wide range of products – there are 26 different horticulture products that earn above $1m from the Japan market. The total value of trade with Japan is approximately 30 percent higher than our trade value with Australia, this despite there being an average 6.3 percent tariff into Japan, while tariffs on trade with Australia under CER have been at zero for over 30 years since the agreement was signed.
On a Cif basis the annual cost of the tariffs in Japan are likely to be approximately $47m in annual savings. For horticulture tariff reduction, 98 percent of the tariff reduction benefit from the entire CPTPP, comes from the inclusion of Japan in the deal. Will the New Zealand horticulture sector lose much through the US opting out of the deal?
No. The tariffs on NZ products entering the US are comparatively low, averaging just 0.2 percent of the total value. The two leading items (apples and kiwifruit) are both on zero tariff into the US.
• The NZ horticulture sector’s trade with the US has been static – in the year to June 2018 it amounted to $174m, declining from a peak of $203m (or six percent of the total earnings) in 2016. In 2018 this share was down to 4.8 percent. The value in 2018 was equivalent to that in 2001.
• Trade with the CPTPP group over the past four years has increased, ranging between $1 - 1.2 billion and represented 32-39 percent of our total all markets export trade – see following table.
• NZ horticulture sectors have generally good access to the US market for a wide range of fresh products at relatively low tariffs. This will not change in the wake of the US opting out of TPP.
• While we acknowledge that the US involvement in TPP was significant for other food producing sectors of the NZ economy, the relative importance of the US market to the NZ horticulture sector has declined over the past 20 years as other market destinations have emerged. A point to note is that under AANZFTA a number of tariffs are already on a phase-out programme and will be eliminated by 2020 at the latest. This applies principally to trade with Vietnam. >
The full range of NZ’s horticulture export products are covered or included in the agreement (i.e. there are no product exclusions). But products can still be excluded from accessing a market on phytosanitary grounds.
The CPTPP is not just about tariff reductions. A multitude of non-tariff barriers will be addressed and formal policies and provisions introduced to improve the overall trading situation. Some examples of the likely reduction in non-tariff barriers will include:
• A chapter on sanitary and phytosanitary (SPS) rules/issues that will reinforce and build upon the WTO SPS agreement (which entitles a country to protect human, animal or plant health from the introduction of pests, diseases and ensure imported food is safe to consume). The chapter seeks to ensure that SPS measures implemented by each party do not create unjustified obstacles to trade. Most recent FTAs NZ has been a party to contain a SPS chapter.
• Elimination of export subsidies in the CPTPP region. The parties have agreed to eliminate export subsidies within the region. This is a significant achievement as a number of countries (e.g. Canada) have various export subsidy schemes that distort international markets.
• Improved customs administration and trade facilitation. The customs chapter requires each party to ensure its customs procedures are applied in a way that is predictable, consistent and transparent. This should lead to a lower cost of trade, simplified customs procedures for traders, and the faster clearance of goods.
• Procedures for dealing with trade remedies. If as a result of the reduction and elimination of tariffs under CPTPP, there is an increase in imports causing or threatening to cause serious injury to the party’s domestic industry, the parties retain their rights and obligations under the WTO agreements on antidumping, countervailing duties and global safeguards. The chapter also provides that, during a transition period after the CPTPP’s entry into force a party may apply safeguard measures with respect to another party’s imported goods (which involves temporarily raising the tariff applying to the imported goods). • Technical barriers to trade (TBT). This chapter builds on the parties’ existing rights and obligations in the WTO TBT agreement, and seeks to eliminate unnecessary technical barriers to trade, enhance transparency, and promote regulatory cooperation and good regulatory practice. The TBT chapter also establishes a committee that aims to strengthen joint work relating to standards, technical regulations and conformity assessment procedures with a view to facilitating trade. This committee will be a valuable forum to address non-tariff measures.
• Rules of origin set out the rules on a product by product basis for the level of production or the value threshold, in order to claim a preferential CPTPP tariff rate. It will enable NZ producers/processors to use product from within the CPTPP region and claim the preferential tariff rate on the exported product. Other areas of interest to the NZ horticulture sector include;
• Intellectual Property (IP) provisions chapter will harmonise IP standards across the CPTPP region, assisting NZ businesses to protect their IP. NZ copyright law currently provides
protection for 50 years – this remains unchanged.
For agrichemicals NZ amended its legislation in 2016 to double the period of data protection (from five to 10 years) before generic manufacturers can enter the market for an innovative new product. This provides a greater incentive to manufacturers to register new agrichemical solutions for a wide range of crops. • For Plant Varietal Rights (PVRs), NZ is already one of 73 member countries to the International Union for the Protection of New Varieties of Plants (UPOV), having joined in 1981, and observes the UPOV 1978 Act. The most recent UPOV Act is 1991 so under the CPTPP NZ will need to give effect to the requirements of UPOV91. The NZ Plant Variety Rights Act (PVR) is based on UPOV78. The requirements cut both ways; i.e. NZ-bred plants protected by PVRs should get longer protection periods. Member countries are in the process of ratification via their domestic parliaments. The CPTPP will enter into force 60 days after six members have completed the ratification. As at August 31 Mexico, Japan and Singapore had completed this. In NZ the bill to ratify the agreement is at the select committee stage and the foreign affairs, defence and trade committee is required to report back to Parliament in December this year. It is feasible that the CPTPP may enter into force in the first quarter of next year.
For further information on the CPTPP go to https://www.mfat.govt.nz/en/ trade/free-trade-agreements/freetrade-agreements-concluded-butnot-in-force/cptpp/cptpp-overview/ Included is a comprehensive National Interest Analysis (NIA) statement.
The CPTPP will enter into force 60 days after six members have completed the ratification. As at August 31 Mexico, Japan and Singapore had completed this.