August Trade Update
The National Party has released a trade policy manifesto in advance of the election. This calls for the completion of the TPP 11, the FTA with the Pacific Alliance (Mexico, Colombia, Peru and Chile), and the Regional Comprehensive Economic Partnership (ASEAN plus Australia, NZ, India, China, Japan and Korea). It calls for the launch of new negotiations with the EU, the UK, Sri Lanka and (interestingly) MERCOSUR (Brazil, Argentina, Paraguay and Uruguay). Upgrades to the FTAs with China, Singapore and ASEAN will be attempted. Negotiations with India, the GCC and Russia are mentioned but no target for completion is suggested. Revival of the politically impossible Russia negotiation is interesting as is the inclusion of the GCC in this listing. Until relatively recently officials and Ministers were assuring us that an outcome to that negotiation was imminent. An outcome from the India negotiation is unfortunately seen to be most unlikely for many years to come.
Russia and the UK are the only two FTAs that New Zealand First seems to support. Could this be the reason for this listing?
Any hope of a bi-partisan approach to trade policy has been dashed by the election campaign. Labour is refusing to support TPP 11 unless it is re-negotiated to allow it to ban foreigners from buying certain classes of property. (TPP would allow a discriminatory taxation measure to be used against foreign real estate purchasers but it does not allow a ban). NZ First is opposed to TPP full stop.
Re-negotiation of TPP beyond the entry into force provisions is a potential major problem. Any attempt to negotiate anything of real substance (allowing a ban on real estate investment would be regarded as a matter of substance) risks other TPP members seeking to re-negotiate commitments (eg meat or dairy access). A chain reaction could be unleashed and this could cause negotiations to collapse. To date all attempts at re-negotiation have been resisted so as to avoid such a chain reaction. But should New Zealand make a request for a re-negotiation there are probably a few TPP members who would be happy to agree. They would be delighted to claw back some of the agriculture access conditions already agreed, but that might upset other members. At the end of the day there is a risk that a New Zealand renegotiation request will prove too disruptive and TPP 11 might perversely become TPP 10 (TPP minus NZ and the US). This result would be perverse as TPP was originally a New Zealand idea.
Re-negotiation of TPP will also not seem to solve all of Labour’s concerns. The New Zealand FTA with Korea also prohibits a ban on Korean investors in NZ real estate. And because a clause in the China FTA says that China will get improved access rights agreed in subsequent FTAs with others, this means that China now gets the same rights as Korean investors. If Labour wants to ban Chinese real estate investors then it will need to re-negotiate the FTA with Korea. Korea might well agree to a request for re-negotiation, but the price is likely to be paid in some area of agriculture market access into Korea.
If set high enough, a stamp duty applying to Chinese and Japanese nationals would be a strong deterrent to real estate investment. The impact would be similar to a ban. Why is Labour so determined to have a ban? A high stamp duty can be imposed without having to renegotiate existing or finalized FTAs.
Globally the trade policy world remains in some turmoil. Attempts by the US to re-negotiate the FTA with Korea and NAFTA have achieved little or no progress. President Trump (probably as a negotiating ploy) has just suggested the possibility of US withdrawal from NAFTA.
In Europe all eyes are on the German election. The Brexit process remains confused.