Pattrick Smellie: NZ the loser as Japan rewards US for bad behaviour

US President Donald Trump and Japanese Prime Minister Shinzo Abe. Photo / AP

COMMENT:

To understand the threat to New Zealand's exporters from the fracturing global consensus on trade liberalisation, look no further than last week's 'mini' free trade agreement between the US and Japan.

For the sake of cosying up to Washington, Japan has traded away this country's greatest gains from the hard-fought CPTPP trade agreement.

Signed between 11 countries and in force for just nine months, CPTPP was always for New Zealand about better access to the huge American and Japanese markets, where attempts to get FTAs had tried and failed in the past.

CPTPP – or TPP as it was originally - was to have killed two birds with one stone, bringing both countries into a trade agreement spanning major Pacific Rim economies, excluding China.

Indeed, keeping China at bay was a primary reason for both the US and Japan belatedly supporting a deal first started by New Zealand, Singapore, Chile and Brunei – the so-called 'P-4' - in 2006.

However, Trump capriciously withdrew the US from the then TPP process in his first executive order after inauguration, leaving only Japan as a major prize for New Zealand agricultural exporters.

Now, by signing a limited two-way deal with the US that excludes almost all but agricultural goods, Japan has robbed New Zealand of the only substantial, immediate trade advantage gained from the 12-year CPTPP negotiation process.

Visiting Japan in May this year, it was striking how limited CPTPP's immediate gains appeared to be. For some small New Zealand exporters seeking growth in the heavily protected Japanese market, it was a boon. Cookie Time, for example, faces far lower tariffs on cookie dough, but its Japanese business is embryonic.

For big players like Fonterra or Zespri, existing customer relationships, specialty products and global market conditions remained far more important than CPTPP.

For beef exporters, however, it was proving a huge boost by eliminating the advantage that Australian beef producers had gained over New Zealand, the US and Canada in 2015, when Canberra signed an FTA with Japan.

New Zealand beef exports to Japan have been recovering strongly this year.

With the new US-Japan deal, that is all at risk because US beef producers now get CPTPP-type access to the Japanese market. Yet the US has not traded away any of the things that CPTPP signatories agreed to.

It is difficult to know what to call this other than betrayal and a reward for bad behaviour. The Trump administration, having thrown much of the rules-based global trade architecture into chaos, gains improved market access to Japan anyway.

Trade policy wonks point out that the US-Japan deal may offend against World Trade Organisation Most Favoured Nation rules.

However, the WTO is almost neutered as a venue for settling international trade disputes, also thanks to the US, which refuses to consider replacements to the WTO's appeals panel. The resignation of just one of the remaining seven members of that panel, now expected later this year, could cripple it altogether.

As Trumpian victories go, the scoreline looks to be Patriots: 1, Globalists: Nil.
Why has Japan done this, especially when Japan's unexpected leadership saved the CPTPP after the US first pulled out?

Simply put: for the same reasons as the US and Japan joined TPP negotiations in the first place: to help contain China.

Both countries are, if anything, more motivated to counter Chinese economic and political expansionism.

Japan's Prime Minister Shinzo Abe is aggressively pursuing stronger links with western powers as a result.

One tiny example: Prime Minister Jacinda Ardern's announcement during her Japanese visit a fortnight ago included negotiating a new "security information sharing agreement" as part of closer defence ties.

Could Japan be angling to become a sixth eye in the Five Eyes global surveillance system?
In short, the Japan-US mini-FTA is profoundly disappointing from a New Zealand and CPTPP signatory perspective, particularly as a harbinger of the potential for the global trading system to unravel in response to populist politics.

However, New Zealand trade negotiators are not quitters.

In the same spirit as the P-countries who that kicked off the CPTPP process, New Zealand was a prime mover in last week's promotion of a new kind of trade deal seeking to remove trade barriers to technologies that tackle climate change – the so-called ACCTS initiative.

Prime Minister Jacinda Ardern recently visited Japan. Photo / File

This time it's a P-5 grouping: New Zealand, Norway, Iceland, Fiji, and Costa Rica. At first blush, this may seem a motley crew. But Norway is de facto leader of the Ottawa Group seeking to save the WTO and a major investor in green tech. Fiji has standing because of the Pacific Islands' position on the front line of climate change impacts. The rest of the world sees New Zealand as an optimistic beacon, even if many of the locals don't.

If Mark Rutte, the Prime Minister of EU heavyweight the Netherlands, were to give a nod in the direction of ACCTS during his visit to New Zealand next week, it might just start getting legs.

Footnote: the inelegant CPTPP name stands for Comprehensive and Progressive Trans-Pacific Partnership (Agreement), signed by New Zealand, Australia, Japan, Singapore, Chile, Peru, Mexico, Canada, Brunei, Viet Nam, and Malaysia. ACCTS stands for Agreement on Climate Change, Trade and Sustainability.