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.

NZ Grower - - Cptpp - By Si­mon He­garty

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.

The CPTPP;

• 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.

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