March Trade Update

CPTPP

CPTPP has been signed.  We now need to get it ratified fast.  Once six members have ratified the agreement it comes into force.  While in Chile for the signing ceremony New Zealand, Canada and Chile agreed to work together on promoting the new progressive trade agenda with chapters on such topics as women, indigenous people, SMEs and sustainable development and climate change.

Pacific Alliance

The most recent round of negotiations between New Zealand and the Pacific Alliance were held immediately prior to the TPP signing in Santiago.  Indications are that this negotiation is progressing well.

MERCOSUR

Before signing CPTPP Trade Minister Parker visited Paraguay where he explored the possibility of a negotiation between New Zealand and Mercosur.  Mercosur is a customs union which means that the grouping has a common external border and common border protections.  The group has been quite protectionist for a number of years but over the past year or two, with changes in government in Argentina and Brazil, the group has become more outward looking.  Venezuela has been expelled from the group which helps.  Don’t expect anything fast but this is a potentially interesting new trade policy for New Zealand.

Mercosur comprises Argentina, Brazil, Paraguay and Uruguay.

UK

Also promising is news that under the transition agreement with the EU, the UK will be able to begin to negotiate FTAs with third parties that will come into effect after the UK actually exits the EU.  This should allow an earlier start in negotiations with New Zealand than some had been anticipating.

EU

We still don’t have a mandate but signs are promising.  Politicians have let slip that a high level visit might be happening soon.  We are hearing May for the possible launch of this negotiation.

US and the potential trade war

Last week President Trump signed an executive order enabling the imposition of 25% tariffs on some $60 billion of Chinese imports.  The actual products are as yet unlisted but reports suggest that the measure is likely to affect 1,300 product lines in the technology space – aeronautics, modern rail, new energy vehicles and other high tech products have been mentioned.  The President is justifying the measure as a response to Chinese trade practices that allegedly involve the stealing of US intellectual property by Chinese firms.  His speech also suggested that this was also driven by a concern at the size of the US trade deficit with China.

This move follows the announcement two weeks ago that the US was going to impose 25% tariffs on many steel imports and 10% on aluminium imports.  This was justified on national security grounds.  Originally these steel and aluminium tariffs were targeted globally but many countries look as though they will be exempted temporarily at least.  Australia, Mexico, Canada, EU, Brazil and Korea look as they are in that category.  We don’t know yet about New Zealand and Japan, but it looks as though China will face the tariffs – should they ever be imposed.  These exemptions are interesting.  The US seems to be saying you are exempted until May but during that period you need to negotiate some alternative arrangement.

If the result of all these new announcements is new talks (or talks about talks) this is a good thing.  But if some of these tariffs actually get imposed we have a problem.

First there is a direct impact on New Zealand.  We do export steel and aluminium to the US and unless we are exempted we may lose our market there.  I know that from PM Ardern down strong efforts are being made to achieve this exemption but we seem to be affected.

But even if we are exempted there could be indirect impacts, such as depressed global prices for steel and aluminium, plus displaced Chinese and Japanese product needing a new export market.

Perhaps just as important as these trade impacts is the fact that the US seems to be acting in breach of WTO rules in imposing the steel/aluminium and the technology tariffs.  The national security argument looks extremely flimsy and there really is nothing I can think of to justify the technology tariffs (maybe – just maybe – some action after winning a WTO complaint might be justifiable but this action is being proposed ahead of WTO action).  And these actions are a clear breach of US tariff commitments made in the WTO.  This opens the potential of retaliation by China and others.

These developments also raise major issues of principle for New Zealand.  Our exporters depend on this set of WTO rules and their subsequent improvement through bilateral or regional FTAs to underpin our trade.  If the US or anyone else can justify increasing steel tariffs on flimsy grounds, why can’t they start restricting meat or dairy imports?