Economic Cooperation Framework Agreement (ECFA)
New Zealand played host last week to the latest negotiating round in ECFA. This negotiation is not (as much of the media maintained) a China centered agreement but an ASEAN initiated process and involves also the three large north Asian economies – China, Korea and Japan – India and Australia and New Zealand. The importance of this negotiation for New Zealand is that it gives us a potential to achieve better access to India and Japan than we have at present. Out FTA negotiation with India is not making much traction and better access to Japan is at present hostage to the ratification of TPP.
This potential agreement will be important to New Zealand but it seems that this importance may have been overhyped.
First, the pace of this negotiation has been slow.
Second, there are major problems unresolved. Japan, Korea and China view each other with deep suspicion on the trade front. Access agreements negotiated under the ECFA framework will be deeply sensitive and complicated. India’s commitment to market opening is also far from convincing. If India is unwilling to make liberalization commitments in its bilateral agreements why would it be willing to do so under the ECFA framework?
We should not expect rapid progress in this negotiation and we should not expect good liberalization outcomes from ECFA.
It is possible that markets have over reacted to the Brexit vote. There should have been a negative reaction but it could be too negative. At this point in time there are no direct negative reductions in access to the EU/UK but there will be an immediate indirect effect through the reduction in the value of the Euro and Pound.
Markets were not expecting this outcome. Markets don’t like uncertainty and we have uncertainty about what the UK-EU relationship post Article 50 negotiations will look like. We have political uncertainty too. Cameron has gone and we don’t yet know who will replace him. And there may be implications for Scotland and maybe some others in Europe will want to join the UK in seeking a different relationship with Brussels.
There have been a number of negative assessments about the implications of Brexit for New Zealand exporters and our economy. However, the negatives could be countered by the positive impacts that the already planned FTA between New Zealand and the EU would have. We also now have the option of seeking a FTA with the UK. Previously that was impossible because the UK was part of the EU Customs Union.
At this stage we don’t know what impact Brexit will have on our FTA negotiation with the EU. There have been reassuring noises coming from Brussels but we should assume that Brexit will both slow and complicate this negotiation.
Interestingly politicians from pretty much all sides in New Zealand have called for a FTA with the UK. This offers the possibility of reestablishing the trade policy consensus that was broken over TPP. But we don’t know how the UK will react to New Zealand’s willingness to negotiate.
One complicating factor is our quota arrangements with the EU. These were negotiated to compensate us for Britain’s entry to the EEC in the 1970s. It is likely that some in the EU will argue that these obligations should pass back to the UK. This will be an important matter for us to negotiate in our bilateral FTA with the EU and it makes this negotiation all the more important.
We will keep members updated on Brexit implications as things develop.
Trade Minister Todd McClay is heading off this week to the next meeting of the Pacific Alliance. New Zealand is keen to associate with this FTA, but Colombia has been resisting this. Now that the Colombian Government has signed the peace treaty with the FARC rebels attitudes to negotiating with New Zealand may be changing.