June Trade Update
EU FTA Negotiations launched
Some six months later than anticipated the EU-New Zealand FTA negotiations are now officially launched. This is a historic and positive development. But this will not be an easy negotiation. Expect it to take at least 2 years. Agriculture, Geographic indications, data localization and other issues will take time to work through. How will the Labour, Green, NZ First Government regard the EU proposed investment court when they consider the detail? What will the Eu be pushing for on Intellectual Property and will this be much different from what the US was pushing for in TPP? And will the MFAT negotiators be able to bring themselves to be more transparent and consultative in the negotiating process?
This process was begun by the Key Government, continued by Todd McClay under Bill English and Labour’s David Parker can be very proud that we actually have negotiations launched.
Those with interest in the EU market – for goods, services and investment – should talk to MFAT about whether this negotiation has the potential to open markets, reduce regulation/compliance costs etc.
We will be following this negotiation closely.
We understand that this negotiation involving New Zealand, Singapore and Australia joining the Pacific Alliance free trade agreement (Mexico, Colombia, Peru and Chile) is making good progress. MFAT is consulting on this negotiation around the country.
Global Storm Clouds Gather
The prospect of a trade war between the US and other major economies is growing. There are several fronts open in this potential “war”. Increased steel and aluminium tariffs have now been applied to those countries who have been unwilling to enter into voluntary restraint arrangements with the US. These countries include Japan, EU, China and New Zealand. Australia is one of the very few countries exempted. These tariffs are being justified in the US on “national security” grounds. A number of WTO members have challenged the legality of these tariffs and have retaliated with tariffs of their own. The fact that they have gone ahead with this retaliation appears a surprise to some in the Trump administration as they believed that no one would dare do this.
Trump has announced that he is considering introducing increased tariffs on automobiles, also for national security reasons. This could spark another round of retaliation.
He is also trying to use tariffs on Chinese goods as a way to pressure the Chinese government on issues such as intellectual property and the way US companies investing in China are treated. Originally $50 billion in goods were identified for this action. China has issued its own retaliation list on $50 billion of imports from the US. The US has upped the ante by increasing its list of products for higher tariffs to $200 billion. China has said that it will retaliate in kind, but this will be a challenge as US exports to China are not worth $200 billion. There is speculation that China might expand the retaliation to US services companies or to US companies operating in China.
Why is New Zealand worried? First we are directly affected by increased tariffs on our steel and aluminium exports to the US. We might also see some of the product displaced from the US market either disrupt our trade with other markets or in the New Zealand market.
The automobile tariffs could impact our component industry. Retaliations could impact a range of products on global markets.
The China-US fight could create some opportunities but it could impact negatively on our exports to the US or third markets where US or Chinese product previously destined for the US or China might end up being sold at lower prices than would be the norm.
These processes are clearly causing nervousness on global capital markets. This is also a potential worry. A contraction in world trade would be very negative for the overall state of the global economy.