Trade Update November 2014
Date Added: 19 Nov 2014 from BusinessNZ
It has been a busy period for trade policy with APEC and the G20 meeting. This allowed progress to be achieved on a range of bilateral and regional initiatives also.
A bilateral discussion between the US and China seems to have removed remaining blockages to the achievement of an update of the plurilateral Information Technology Agreement. Technology has changed considerably since the mid-1990s since the original deal was signed. The idea is to extend the duty free coverage of IT products invented since the first agreement. New Zealand is a party to this negotiation.
Another bilateral discussion between the US and India seems to have unblocked the ratification of the trade facilitation agreement agreed last year at the Bali WTO Ministerial Meeting. The failure of the WTO to ratify this Agreement a few months ago has damaged the WTO's credibility.
Both the ITA and Trade Facilitation Agreements are of economic significance, but perhaps most importantly, they will go some way to restoring the WTO's standing.
There was interesting debate at the G20 meeting on the WTO's consensus based decision-making model. Next year there will be more discussion about improving the way the WTO operates.
The text of the Agreement is not yet available. It needs to undergo legal verification and translation to Korean. Contrary to multiple media reports the Agreement has not been signed.
From the information that has been released the Agreement seems to be better than some were expecting. In some product areas (eg milk powder) it exceeds the Australia-Korea outcome. In others it will allow New Zealand exporters equivalent access conditions to our competitors that already have FTAs with Korea. For some of our meat exporters and for Zespri the lack of an FTA was beginning to be a major challenge in the Korean market.
There are some exclusions – fresh and frozen deer velvet and frozen squid have attracted media comment. These are unfortunate but reflect the fact that other, bigger economies have negotiated deals ahead of New Zealand. They have been willing to accept less than comprehensive outcomes. So New Zealand was facing a choice between a poor quality deal or no deal. And in this case the Government has had to be pragmatic.
New Zealand has had a FTA with China in force since late 2008. Australia has been negotiating a FTA with China since 2005 (almost same start time as New Zealand) but only concluded negotiations this week. There are some suggestions that the Australian Agreement might harm New Zealand interests.
It is hard to be definitive on the impact of the FTA at this point in time as the text of the Agreement is not available. A read of the information sheet available on the DFTA website does not cause us undue concern. It is possible that in some areas Australia has either matched or bettered New Zealand access conditions. But in many other areas it will take time for Australian exports to be treated as well as New Zealand exports. We will share a detailed assessment once the text of the Australian Agreement is available.
We note that Australia has had to exclude some important export products from this FTA – rice, wheat, cotton and sugar.
The Importance of First Mover Advantage
The Korea FTA demonstrates the problem New Zealand faces in negotiating an FTA with a party that has already settled similar agreements with competitors. Countries like the US, Chile, Canada, EU and Australia are often more willing to settle for lower quality outcomes than New Zealand would normally agree to. This greatly increases the degree of difficulty for New Zealand negotiators. And at the end of the day, it is very hard for New Zealand to improve upon the outcome agreed by others in all areas.
Perversely, where New Zealand has first mover advantage – eg China and Taiwan – we are setting a high standard that our competitors will eventually benefit from too. The Australia – China FTA is probably a much higher standard agreement as a result of the New Zealand – China FTA that preceded it.
These factors suggest that the trail blazing nature of New Zealand trade policy has been more beneficial, in terms of quality agreements, than would have been the case if New Zealand had adopted a fast follower strategy. It also suggests that the Government should be encouraged to continue innovation in this space. Where else can we be the first economy of our type to begin a FTA negotiation?
Talking in Beijing between TPP leaders seem to have added some impetus to the negotiating process. There seems to be agreement that, should the Obama Administration be able to secure a negotiating authority, negotiations should be intensified with a view to reaching agreement in the first few months of 2015. If this fails then a multi-year delay seems inevitable.
Unfortunately Japan has just announced a snap election which presumably stops this key player in the negotiation from taking firm positions in the negotiation until the election outcome is known. This should not stop the US from seeking a negotiating authority, but it may cause a short hiatus in the negotiations themselves.