Stephen Jacobi.
OPINION:
A new report urges us to think ahead about new trade partners.
It takes two to tango, but when it comes to trade, the more partners you have the better. New Zealand's trade negotiating dance card has been very full in recent years, but a new report released this week shows that 40 per cent of global consumption is currently beyond our reach.
True some 60 per cent of the trade not currently going to FTA partners is represented by one partner — the United States — which more than justifies continuing the effort to seek a closer economic partnership. India is another partner where we have to think outside the square to grow our economic links. Even with the current busy negotiating agenda, there's still work to do, something Trade Minister Damien O'Connor will doubtless be reflecting on in his stay in MIQ.
New Zealand's trade negotiating agenda is entering a new phase. The "mega-regionals" have now been completed — the little known RCEP (Regional Comprehensive Economic Partnership) and earlier the very well-known CPTPP (Comprehensive and Progressive Agreement on Trans-Pacific Partnership). This means that New Zealand's long-term strategy of seeking transformative agreements with partners in the Asia Pacific region, first outlined in the early 1990s, has largely run its course.
That does not mean of course that the region is trade barrier-free: some of the agreements we have negotiated still do not provide tariff-free market access, especially in dairy and meat, with important partners like Japan, Korea and Canada. We have to work to upgrade and expand existing agreements, as we have recently done with China, and we have important negotiations with the EU, the UK and others to complete.
But this new report is deliberately not about the existing agenda: it is about the future and about the other partners to which New Zealand should be looking. Much of this work is by nature long term. The pathway to launching trade negotiations can take many years. It has become fashionable lately to remind exporters of the need for diversification. Guess what — they get it already. Unless someone is suggesting we sell less to China, and leave much needed foreign exchange on the table, the real aim is to ensure that New Zealand businesses have options. If there is anything that the last few years of global trade turbulence have shown, it is that exporters need to be able to pivot, sometimes at very short notice, and that is very difficult to do in the face of tariff and non-tariff barriers.
The report rightly concludes that "she's a hard road finding the perfect FTA partner". It uses a data-driven approach to establish a number of key economic factors and an "FTA Suitability Index" to point to a list of 22 economies (below) which we should at least be seriously considering. The list itself is not so important as starting the process of thinking about how best to engage with future partners, whether on the basis of high quality and comprehensive FTAs or other means.
The keen observer will notice there are immediate negotiating difficulties likely to arise with most of these potential partners. The two highest-polling candidates, Switzerland and Norway, are not likely to want to welcome agricultural trade liberalisation. But they are also members of the European Free Trade Area (EFTA) and closely aligned with the EU, with whom we are already negotiating. Norway is a participant in the NZ-led ACCTS (Agreement on Climate Change, Trade and Sustainability), suggesting some common interests on which to build. Others on the list are not well known to New Zealand — take for example Morocco, the Dominican Republic or Côte d'Ivoire.
Nor is it possible for a quantitative survey such as this to consider all the relevant factors or to reflect the commercial strategies of all participants in the export sector. Companies may have multiple aims for developing certain markets and historical trade statistics may not reflect trade that might occur if barriers were lowered.
The report also makes clear the prize of seeking to expand even further New Zealand's existing FTA coverage. Many of these economies have large populations and can be important markets for exports — moreover, these markets also have significant GDP and middle class growth. With an eye to the future, such growth opportunities are critical.
This report focuses largely on goods trade but in recent years, before the pandemic, services including tourism and education crept up to around 30 per cent of our exports: post-pandemic, services and digital trade will be key to a resilient trade future, also serving as enablers of physical goods exports (e.g. via paperless trade and backbone services for global value chains such as logistics and technical testing). Future FTAs can also include new issues such as the environment, including climate change, while extending the opportunities to benefit from trade to small and medium-sized enterprises, women and the Māori economy.
FTAs are not the only factor in developing export business. At best they open doors which businesses can then go through and they provide an environment within which costs are lowered, time can be saved and risks are mitigated. The process also help bring potential markets onto the radar of business on both sides. Those things still matter, especially for smaller businesses and small economies such as ours. As the pandemic has shown, trade has continued to uphold the New Zealand economy through the crisis. Other storms are likely to appear in the future and while we are rightly doing the business of today, it is useful to build for tomorrow.
This report will hopefully spark discussion between businesses, stakeholders and the Government. Inevitably there will be decisions to be made about priorities and resources. But as we plot a course of recovery from the pandemic, we need to be thinking ahead. Trade, like complex dance routines, takes time to learn.
All the more reason to start now.
● Stephen Jacobi is Executive Director of the NZ International Business Forum.
● "Wanted! Free Trade Partners" is a report commissioned by the NZ International Business Forum and prepared by Sense Partners.
The full report is available here www.tradeworks.org.nz/category/reports-publications
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