Trade update - June
June Trade Update
While many of us were locked down at home, international trade and international trade negotiations continued. But the recent period has highlighted vulnerabilities in the supply chain and in our international relationships. Decisions taken around the COVID-19 response did not always take into account the impact that they might have on New Zealand’s trade. And, unfortunately, many Governments offshore have used COVID-19 as an excuse for more protectionism as opposed to encouraging freer flows of goods and services.
The New Zealand Government’s response to this situation has been excellent. The fact that trade has continued to flow reflects a proactive problem solving approach which we hope will continue as COVID-19 retreats as a threat. The recent Budget has continued this support with NZTE being funded to greatly increase the level of assistance available to New Zealand exporters in these difficult times.
If we have to lock down again in the future we would hope that export focused manufacturing would be declared an essential industry.
We strongly recommend that exporters monitor the excellent resources available on both the NZTE and MFAT websites and the types of support available and also on what is happening in key export markets.
The work done by NZTE and the Ministry of Transport to keep air freight flying was very helpful to the export community.
Luckily sea freight services have remained largely available over the last few months.
Keeping the Supply Chains Open
In response to signs of global protectionism being on the rise, including for products essential to the COVID-19 response, New Zealand and Singapore responded with an agreement to keep bilateral supply lines open for essential products. Canada, Australia, Chile, Brunei and Myanmar quickly joined this agreement. This was an excellent initiative and we are pleased to note that support for this approach has been expanded in the WTO and with APEC.
More recently the New Zealand Government has been innovative in working with Singapore and Chile to reach agreement on the Digital Economy Partnership agreement.
Modules for this agreement are still being developed and negotiated but they reflect the increased reliance on digital trade or the use of digital platforms to support international trade in the COVID-19 era where physical travel is not possible or very difficult.
More conventional trade negotiations have also continued.
Two rounds of the negotiation have taken place by Zoom over recent weeks.
The negotiations of the FTA with the EU has been a slow process. Progress has been made on some of the rules but progress on the more contentious issues has not been possible until the EU revealed its hand on market access for dairy and meat products.
This has happened but the way it happened was as unfortunate as the detail. New Zealand Ministers and officials read about the EU initial offer on Twitter after details were leaked to two EU trade publications. And, as feared, the offer was very disappointing.
The EU has subsequently apologised for the leak and is reconsidering its position. The EU seemed surprised by the strength of the reaction from Hon David Parker and realises that an improved offer will be required before more substantive progress can be achieved in this negotiation.
It is clear that a big improvement in this position will be needed before there is any hope of reaching an outcome in this agreement.
More positively, the much anticipated negotiation with the UK was launched on Wednesday. On the surface this looks like an exciting opportunity for New Zealand as the UK was once our most important trading partner. The potential to expand trade in goods and services and to increase investment linkages with such a large economy is enormous.
The UK seems keen to be adventurous in terms of the scope of this agreement and it could be the most ambitious FTA that New Zealand has negotiated since CPTPP. Indeed the UK seems open to negotiating on issues that have sprung up since CPTPP.
But there are complications. The UK is negotiating with other larger players – the EU, US, Canada, Japan, Turkey and Australia are all in negotiations with the UK at the same time. The UK has the resource available to negotiate on all these fronts but there will be inevitable impacts on the New Zealand negotiation. The US for example has enormous interest in dairy exports to the UK. Australia will be interested in sheepmeat and beef exports to the UK. Can New Zealand expect to reach a final agreement on these products without the UK first reaching agreement with these other countries? The answer may be yes, but we still don’t know. Likewise, what agriculture model will the UK want to settle on? UK agriculture has been heavily protected and subsidised under the EU model. Will the UK be willing to open the sector to full international competition or will UK ambitions be more modest?
Exporters of goods and services to the UK should be in contact with MFAT about any policies and regulations impacting this trade in a negative way. This is a once in a generation opportunity to have these laws or regulations or tariffs part of this negotiation.
The good news does not stop with the bilateral FTA. The UK has announced interest in joining CPTPP. The addition of another G7 and G20 economy to CPTPP would be very welcome and would increase the interest in others in joining this agreement.
Until recently we have been expecting Thailand to be the first candidate for CPTPP expansion, but Thailand has become more cautious as domestic opposition to being part of this agreement grows.
A meeting of CPTPP members is due to be held soon. We assume that it will proceed but that it will have to be a virtual meeting. Other jurisdictions may seek to join the UK in putting their names forward for membership.
There is some uncertainty now about New Zealand hosting APEC in 2021. Malaysia, the current host, has faced severe disruption to the process because of COVID-19 and is requesting a roll-over of the hosting responsibility until 2021.
APEC members are considering this request.
The WTO is facing continuing pressure from the US. A test of the US position will be a decision on a new WTO Director-General. Nominations are due by early July.
We are monitoring this process closely along with various calls for WTO reform.
For New Zealand, the proper functioning of the international rules based system overseen by the WTO is enormously important.