July Trade Update
On the positive side of the ledger New Zealand began FTA negotiations with the EU this week. Negotiations with the Pacific Alliance are continuing and progressing positively. There is increasing evidence that principle will be sacrificed for pragmatism in the Regional Comprehensive Economic Partnership. And the EU has submitted a proposal aimed at saving the WTO’s dispute settlement system. Singapore has become the third country to ratify CPTPP. And the UK has begun public consultations on a possible FTA with New Zealand post-Brexit.
On the negative side we see contagion from the trade war between the US and China and US and the world on steel and aluminium. The Brexit process has become more confused. The recent White Paper released by the UK Government casts real doubt over the UK’s ability to negotiate meaningful FTAs independent of the EU.
Negotiations began last week on the EU- New Zealand FTA. Officials and Ministers are optimistic that this negotiation can be completed relatively rapidly. Certainly there are strong strategic reasons for the EU and New Zealand to seek an early outcome. But agriculture looms large over this negotiation so will be a complication. The uncertainties over Brexit are also unhelpful. Companies with interest in the EU Market should be approaching MFAT now to explain these so that the FTA negotiators can do their best to try and improve the treatment of your goods and services onto and inside the EU.
Trade Minister David Parker and officials are in Mexico this week for a Ministerial meeting of the Pacific Alliance. We understand that negotiations are progressing reasonably well in this negotiation with the four Pacific Alliance members – Mexico, Colombia, Peru and Chile and New Zealand, Australia, Singapore and Canada. Some of the offers on the table are not yet as good as final CPTPP positions. Agriculture is a major problem for Colombia. And there is some resistance to some of the new issues that New Zealand is raising under its new “trade for all” agenda.
As we report below and in our summary above the WTO dispute settlement system is under major threat. This makes the existence of high quality rules and an enforcement system under bilateral and regional FTAs all the more important. This fact is weighing on Ministers and senior officials when they consider the Regional Comprehensive Economic Partnership. While the market access commitments on the table from India would normally make agreement impossible, the rules applying to trade are high standard, and there is an enforceable dispute settlement system proposed for this agreement. Should we keep negotiating for several more years or should we accept a poor market access outcome but have India playing by enforceable rules? We suspect that some major companies are being asked their views on this matter. Everything we are hearing suggests that Government is preparing for an outcome before the end of the year. On balance this is probably the correct judgement. There will be opportunities to improve India’s market access commitments in the future. But we want India operating under a system of enforceable rules at the time that the WTO system risks becoming fully dysfunctional.
Singapore last week became the third CPTPP member to ratify the Agreement. Only three more members need to ratify before the Agreement enters into force. New Zealand is well on the way to ratification but we need to pass our new foreign investment rules before this happens. This is still proving a little problematic, with divisions between Labour and NZ First becoming increasingly apparent on some aspects of the Bill before the House.
While Brexit remains a complete mess and the UK can’t yet begin separate (not involving EU) negotiations with anyone the UK has begun consultations on four possible FTAs – US, Australia, CPTPP and New Zealand. This is a positive step. The consultation document on New Zealand can be found here:
The above was the good news…
The trade war begun by the US has now developed several fronts. We have the tariffs on steel and aluminium being applied to most of the world by the US and multiple countries are retaliating by applying increased tariffs of their own and/or by challenging the legality of the US action in the WTO. The US this week challenged the legality of the retaliations in the WTO – some see this as a good sign. Others see this is as game playing.
Most alarmingly we are seeing contagion. The EU last week announced that it was imposing safeguards on global imports of steel and aluminium as it is concerned that product displaced from the US will end up being dumped in the EU market.
The bigger front is with China where this week President Trump threatened to impose higher tariffs on everything China exports to the US. Right now tariffs have only been imposed on about US$38 billion of Chinese imports with another US$12 billion in preparation. China has retaliated in kind.
Already these tariff increases have impacted agricultural prices, including for dairy. These impacts threaten to get much worse.
Normally these disputes would be resolved before the WTO. But because the US has been vetoing Appellate Judges for the WTO process the WTO system is increasingly becoming unable to resolve cases involving the US. Soon no cases will be resolvable. The EU and others (including New Zealand) are doing a lot of thinking about this and the EU is developing proposals. New Zealand is, we know, working on a plan B. The thinking on RCEP (above) is part of this. Watch this space…