November 2020 Trade Update
All eyes were on the US election. Were we going to have four more years of America First and a challenge to the international rules-based system that is so fundamental to New Zealand interests, or were we going to get a more multilateralist and normal US Administration under a President Biden? Well it seems we will have President Biden.
It is early days and his full team has yet to be identified. However we do know that he is proposing to nominate Antony Blinken as Secretary of State. Blinken is a strong supporter of multilateralism and has publicly supported TPP and other trade agreements. So this is a good start. Biden is, himself, of very similar view.
However, while the tone of the new Administration may change back to something more like US Administrations pre-Trump we should not expect all the tensions in the global trade environment to disappear. The US will still have concerns about the operation of the WTO Dispute Settlement system. The US will still be wanting other WTO reforms. And concern about China will not disappear.
An early test of the new Administration will be how it deals with the issue of the WTO Director-General. The Trump Administration has, in effect, vetoed the candidate most likely to achieve a consensus – Dr Ngozi Okonjo-Iweala from Nigeria (but also a US citizen). Will the US move its support from their preferred candidate Yoo Myung-hee from Korea and support Okonjo-Iweala? Or will the US demand a re-opening of the process? At this stage we do not know the answer to these questions. But they will be sitting there for President Biden on 20 January 2021. It is critical that if we are to return full functionality to the WTO that the next Director-General has the full confidence of the United States.
The FTA negotiations between the US and Kenya and the US and UK will be worth watching also. Expect big delays in these.
The big question for New Zealand is whether the Biden Administration will be wanting to return the US to the TPP (now CPTPP) family? It is too early to answer this. Biden and Blinken are TPP supporters but there are varying attitudes to TPP in the President-elect’s Party and we still don’t know the final make-up of the Senate. We also don’t know what the Republican Party is going to think about trade policy without Trump in the White House. Is is going to be Trumpist and protectionist or is it going to revert to the position it occupied since WW2? What we do know is that the new Administration will take some time to settle down and determine its priorities. It too will be watching the make-up of House and Senate closely and it will be testing attitudes of the Republicans.
Meanwhile the rest of the world moves on….
New Zealand has new Trade and Foreign Ministers
Hon Damien O’Connor has been appointed Minister for Trade and Export Growth and Hon Nanaia Mahuta has been appointed Minister of Foreign Affairs. Both are experienced Ministers. Minister O’Connor was Minister of State for Trade and Export Growth for the past three years. He had specific responsibility for the RCEP negotiation. Hon Phil Twyford takes on the role of Minister of State for Trade and Export Growth. At this point his exact responsibilities are unclear. We welcome this new Ministerial team.
As we have been predicting for some time the Regional Comprehensive Economic Partnership was signed in mid-November but without India. The absence of India reduces the value of the agreement to New Zealand (as New Zealand already has FTAs with all the participants) but the Agreement is good news. There are new market access gains into Indonesia for goods exporters and there are improved services commitments by Thailand for New Zealand. But the real gains will be simplified rules of origin, increased certainty for exporters, and the impact the agreement has on the regional economy. This is then first FTA linking China, Japan and Korea.
The Agreement needs to be ratified before it comes into force. Many are hopeful that sufficient ratifications are achieved to allow it to enter into force by early 2022.
The Third Round of negotiations between New Zealand and the UK was due to be held prior to Christmas. But there has been some slippage into January. This is going to be an important round as it will see the first exchange of market access offers – always a key moment in a FTA negotiation. We believe that the delay reflects the reality that the UK will be unable to make an offer to New Zealand on agriculture until the Brexit process is finalized.
The ninth round of negotiations with the EU began on 24 November. The previous round ended inconclusively with the EU being unable to improve its hugely deficient market access offer. We are not expecting to see much progress this round as the EU has still not been able to improve on this offer. The reason is the same as that mentioned above. The EU can’t move for New Zealand until the terms of the Brexit deal are finalized.
There is growing optimism that negotiations between the EU and UK will conclude shortly. We know that legislation is being drafted in the UK to implement the deal and that plans are being put in place for it to be passed under urgency – before the end of the year. What we do not know is the detail.
We recommend that all exporters to the UK and EU monitor the MFAT and NZTE websites for the latest advice on this situation.