January Trade Update
TPP – Breakthrough or is there more to worry about?
What is it about trade agreements and TPP (now called CPTPP)? Why is final agreement often not final agreement and why do they risk unravelling?
In the case of TPP we have been here before. Agreement was reached under Obama. The Agreement was signed. New Zealand and some others ratified this Agreement. But Obama did not think he had the votes to ratify in the US so it was passed over to the next administration. The first act of the new Trump Administration was to withdraw from TPP as it was a “terrible deal”. The US wasn’t going to do plurilateral or multilateral deals anymore. Bilateralism was the future.
The remaining 11 TPP members did not react as Trump expected. Instead of coming to Washington and begging for bilateral deals they found a way to agree TPP without the United States. Again we thought we were there and that “agreement was going to be reached at the APEC Meeting in Vietnam in November. “Agreement” was reached for a few minutes but then Canada backed off.
Last week officials met in Japan and “agreement” was reached again. The 11 members are due to sign the revised Comprehensive and Progressive Agreement on the Trans Pacific Partnership on March 8 in Chile. The Agreement is pretty much the same as that which was on the table in Vietnam. Aside from the name change the number of suspended elements on the original TPP has risen from 20 to 22. And there is now some language added to meet Canadian language concerns about French language film and TV. The market access commitments so important for New Zealand exporters were all preserved. Surely it was time to celebrate? It seemed that it was.
But the announcement of the TPP breakthrough coincided with the latest round of negotiations between the US, Canada and Mexico on the North American Free Trade Agreement (NAFTA) upgrade. It also coincided with the annual meeting of the world’s financial elite at Davos. President Trump was attending Davos. Many interpreted the CPTPP agreement as a slap in face for Trump and his America First world vision.
Surprise, surprise, President Trump appears to have reacted. He now says that he is willing to look at joining the new TPP if it can be improved further to suit US interests.
This was met with caution from Japanese and New Zealand leaders who rightly see this as a potential delaying tactic by Trump. But Australia has reacted more positively. Don’t forget Australia already has FTAs with the US and Japan. It also has a strange view of its relationship with the US (it sees itself as the Deputy Sheriff in this part of the world). Australia often subsumed economic interest to what it perceives to be political interest.
It is clearly in New Zealand interests to push for CPTPP to be signed and ratified without delay. This ensures that the agreement gets up and running quickly and we begin to claw back some of the advantage gained by Australia in the Japanese market. It also puts the CPTPP members in a stronger position when negotiating with Trump and his team. This position gets even strong if others join the CPTPP ahead of the US. This is only going to happen if CPTPP enters into force.
Trump and his team understand this dynamic. We should expect further attempts to spoil CPTPP from Washington. It is going to be interesting to watch. MFAT is arranging a series of Hui to discuss CPTPP. The first is in Wellington on 8 February, more details here. We encourage members to look out for these events and attend.
The new Labour led Government is handling challenges in the trade policy field well and Minister David Parker is doing and excellent job. It is encouraging to see New Zealand First changing position and supporting the revised CPTPP. The Green Party unfortunately remains opposed.
The EU was meant to have a mandate and to have begun negotiations with New Zealand (and Australia) in November. It is now the end of January. This is not as straightforward a process as first thought. The delays seem to be related to internal EU difficulties as opposed to being a reaction to anything said or done by New Zealand, Australia or the UK.
As an example of how delicate and difficult this process is likely to be we understand that not one member of the European Parliament from France voted in favour of the FTA negotiation with New Zealand when it was voted on last year.
There has been no progress in other FTAs either – India, GCC or RCEP. And the WTO Ministerial before Christmas likewise failed to agree any of the initiatives of importance to New Zealand (eg tackling fossil fuel subsidies or fisheries subsidies).