The announcement by President-elect Trump that he will on day one issue an Executive Order withdrawing from TPP poses an enormous challenge for the New Zealand trade policy establishment. Achieving FTA outcomes with Japan and the US has been a major strategic goal for New Zealand for many years. Australia has FTA links with both countries. We did not. TPP was the solution to the problem.
Alas this announcement puts a FTA link with the US on hold for quite some time. And it threatens such a link with Japan.
Plan A was to support President Obama in his efforts to pass TPP during the “lame duck” period. This was predicated on a combination of factors including the election of Hillary Clinton as the next President. It assumed that the Republicans in the Senate and House would be wanting to re-establish the Party’s reputation as the Party of free trade. And it assumed that the President elect would send signals that she would be comfortable seeing TPP removed from the political agenda before her Presidency began.
Plan A went out the window when Trump was elected and when the Republicans achieved a majority in both Chambers. Why would the Republican Senators and Congresspeople want to declare war on the new President even before he took office?
So what was Plan B? Plan B seemed to be to give Trump and his new team some time to learn how the world works and to actually understand what TPP would deliver. It has been clear up until now that Trump and his advisors don’t really have a good understanding of what is in the Agreement. If, after six months or so, the Trump Administration showed no signs of a change in position, an attempt was going to be made to gather the 11 remaining TPP members in Tokyo or Mexico City and renegotiate the parts of the Agreement that were written to make it impossible for TPP to enter into force without US ratification. The Agreement would be open to others to join. The hope would be that after a few years of being outside the Agreement the US business community would pressure Trump to join also. For New Zealand this Plan would keep the hope of eventual US membership alive while securing the TPP outcome for Japan, Canada, Mexico and Peru – all economies without existing FTA linkages with New Zealand.
The recent announcement by the President-elect pretty much kills that Plan also. Trump has signalled that he is only interested in negotiating bilateral deals. The chances are that Japan will now be going rushing to begin a bilateral deal with the US and turn its back on TPP too. Prime Minister Abe’s comment that TPP was dead without the US participating seems to confirm this likelihood.
We are now in Plan C territory. And there is no script. New Zealand somehow needs to convince the Trump Administration that a bilateral FTA will help make America great again. We likewise need to find some way of interesting Canada, Mexico, Peru and Japan in opening their markets to New Zealand goods and service exporters. Some will say that RCEP might be the way forward. The truth is that without TPP New Zealand faces an uphill battle negotiating meaningful market access into Japan as part of RCEP. The Pacific Alliance might be the answer to the Mexico and Peru challenge. It has the advantage of including Colombia also. Canada? Attempts at a bilateral deal with Canada have been made about every ten years, but they have always failed because of agriculture. There is some talk about a Canada, UK, Australia, New Zealand linkage but that would be many years away.
If this all seems grim, the Trump transition team has made a couple of appointments to the office of the United States Trade Representative. These are none other than his advisors on trade policy during the campaign – Dan DiMicco and Robert Lighthizer. Both are known for their strong links to the steel industry and their protectionist attitudes. Media reports suggest that DiMicco is the front runner to become United States Trade Representative.
We will report further as thinking evolves.
China FTA Upgrade
After five rounds of negotiations with his Chinese counterpart Trade Minister Todd McClay has achieved a breakthrough on the China FTA Upgrade. China has agreed to begin negotiations some time in the first half of 2017. Up until the announcement China had seemed unconvinced that this upgrade would deliver any potential benefits to China.
The focus for these talks will be technical barriers to trade, customs procedures, rules of origin, services, competition policy, e-commerce, agriculture cooperation, environment and government procurement.
New Zealand exporters will welcome this development and should ensure that MFAT and MPI negotiators are fully aware of any difficulties that companies are experiencing accessing the China market.