Japan offers NZ trade diversity
I read a lot of what I believe is a false dichotomy – that New Zealand needs to choose between US or Chinese leadership in the region.
Much of New Zealand’s engagement with Asia is often seen through an economic lens. I have argued there is much more to the relationships than economics. But for many, the business side is what counts most.
In this vein, the standout economic event for the region over the past couple of weeks is the news that there is now in place a process to finalise the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
The original Trans-Pacific Partnership Agreement (TPPA) generated plenty of heat as it broke the longstanding political bipartisan approach to trade agreements and that saw MPs voting with other parties. It was also a touchstone issue for many during the elections.
Not only was it contentious in New Zealand, anti-TPPA sentiment rode the wave of antiglobalisation. On his election, United States President Trump withdrew the US, calling TPPA ‘‘just a continuing rape of our country’’.
Given its backstory, this news that a modified version of TPPA is to go ahead has had a rather muted response – except for the negotiators of course.
Once in force, CPTPP will give us better market access to countries that are signatories, four of which – Japan, Canada, Mexico and Peru, we do not have existing agreements with. Exporters are estimated to benefit from around $222 million in tariff reductions each year once the agreement is fully implemented.
One of the keys for New Zealand is having Japan in the CPTPP, as we’ve been trying to have a deal with them for many years. This will help diversify our trade and shelter us from slowdown or shocks in markets where we are particularly dependent.
A controversial aspect of the CPTPP is that unlike older trade agreements which generally stopped ‘at the border’ (they focussed on tariff rates and quotas), CPTPP goes ‘behind the border’ to include things like stronger environmental and labour standards, and more coherent business systems and processes across countries which have signed.
Thus, the argument made is – CPTPP is important not only for New Zealand exports in making them effectively cheaper overseas, but it also evens the playing field in other areas. There are arguments for (eg, a more even playing field) and against (eg, Johnny Foreigner having influence on our own systems) it. No doubt there will be furious echo chamber Twitter wars about this.
But what does CPTPP mean in the wider regional context? Well, this trade deal now excludes both US and China.
Japan, the world’s third-largest economy, took over the leadership in the negotiations after the US withdrew. Observers read this as Japan’s way to defend rules-based regional trade in the Asia-Pacific to counter China’s growing influence, at a time when US interest in the region appears to be waning.
China hasn’t shown interest in joining CPTPP and instead backs the 16-nation Regional Comprehensive Economic Partnership (RCEP) – which, if approved, will cover nearly 3.5 billion people and account for about a third of the world’s GDP.
RCEP is an Asean-led initiative that includes seven CPTPP signatories – Australia, Brunei, Japan, Malaysia, Singapore, Vietnam and New Zealand.
While CPTPP targets the eventual removal of tariffs on almost all goods and requires the adherence to rules on a wide range of issues, RCEP mainly focuses on tariff reductions in goods – it is a more old-fashioned ‘at the border’ agreement.
Before the US withdrawal from the TPPA, Asia watchers viewed the two trade deals as levers being employed in the regional power struggle between the US (with its backing of the TPPA) and China (with its backing of RCEP).
New Zealand, for its part, has had a tradition of being promiscuous when it comes to trade deals. As long as agriculture is not excluded, (that’s what ‘high quality and comprehensive’ really means) we are keen.
The interesting questions are about what happens next. Will China push harder on RCEP? Would they consider joining CPTPP? After all Korea, Taiwan, and Indonesia have all expressed interest. Where does Belt and Road fit into this? Is the Pacific Alliance interested? Is the US position fixed or might they ‘pivot back’ to this Asian deal? Much to ponder.
I read a lot of what I believe is a false dichotomy – that New Zealand needs to choose between US or Chinese leadership in the region on a whole lot of issues including trade.
Life is rarely binary. Although we may find ourselves having to make choices on some core values in the years to come, agreements such as CPTPP and RCEP are about where we sell our products and services and the rules that govern them.
Our preference is to have our fingers in a lot of pies. CPTPP is one of them. It will be interesting to see where we get to with the others.
❚ Simon Draper is the executive director of the Asia New Zealand Foundation.