October Trade Update

In case you have not noticed we have a change of Government. Jacinda Ardern is the new Prime Minister and Winston Peters is the Deputy PM and Minister of Foreign Affairs.  David Parker is the Minister for Trade and Export Growth.  The Labour/NZ First Coalition is being supported by the Green Party.  All three parties have expressed concerns about aspects of the previous government’s trade policy.  What will this mean for specific negotiations and is there anything new on the negotiating horizon?

TPP

First cab of the rank for decision making is TPP 11.  Senior officials are meeting in Tokyo on 30 October for the last time before Ministers and Leaders meet in the margins of APEC 6-11 November in Da Nang, Vietnam.

We understand that the 11 remaining countries were very close to reaching agreement in Vietnam. This involved a formula which saw no re-negotiation of individual commitments but suspension of some rules that had been proposed only by the United States in the TPP 12 negotiation. This suspension would remain in effect until such time as the United States chose to re-join the agreement.

There have been a number of comments made suggesting that the new New Zealand Government will seek to re-open negotiations to change a commitment on investment and also to change or remove the Investor-State Dispute Settlement (ISDS) provisions of the Agreement.  The first proposal would be extremely problematic as if New Zealand re-opens negotiations on a specific commitment then other members will seek to re-open negotiations on other items and the negotiations will either be prolonged or unravel.

Officials will no doubt be suggesting means by which the desired policy objective can be achieved without a re-negotiation. The issue in question is the right of foreigners to buy existing houses.  TPP allows existing house purchases to be “restricted” but not “banned”. Much focus has been given to the possibility of the use of a taxation measure (such as an enormous stamp duty) to restrict most (if not eliminate) foreign purchases of existing houses. Labour has indicated that they would not find this sufficient.  Other possibilities exist. For example, the Overseas Investment Office regulations could be re-written to include existing houses and each purchase would require justification and application.  This would be extremely expensive and time consuming and would have an effect almost equivalent to a ban.

If Labour were to go down the OIO regulation route on houses this would still leave the issue of Investor-State Dispute Settlement outstanding. We are told that there is no appetite from other existing members to change these provisions at this point in time.  However as attitudes to ISDS have changed under the Trump administration it is always possible that these provisions might be changed at the point at which the US signed up to the agreement.  We expect MFAT will be giving advice to the new Government on this matter.  This, coupled with the fact that the EU-NZ FTA negotiation (see below) offers the chance to develop a new model on ISDS, might be enough to satisfy concerns on this matter.  If they don’t then there would be a risk that TPP 11 might become TPP 10 until such time as New Zealand sorted its policy out.  This would be very negative for export interests.

RCEP

The Regional Comprehensive Economic Partnership (RCEP) will be on the new Prime Minister’s agenda when she travels on from Vietnam to attend that ASEAN meetings in the Philippines 12-15 November.  This negotiation has been stalled because of the low quality of the goods offer from India.  The Prime Minister and team may come under some pressure to be more accommodating of the Indian position.  The Indian position is frankly unacceptable and we would expect New Zealand to continue to work closely with Australia to keep the pressure up on India to improve the quality of its offer.

Pacific Alliance

The first round of the FTA negotiation between New Zealand and the Pacific Alliance (Mexico, Colombia, Peru, Chile) was held recently.  The new Government has made no comment on this but we expect it to support this negotiation.

EU

We were expecting a high level visit in November from the EU to launch the proposed FTA negotiation with New Zealand.  This is still likely to happen but there seems to have been a delay on the EU side (there is still no agreement on a mandate for this negotiation).

Sri Lanka, India and GCC

It will be interesting to see what the new Government’s views are on the stalled negotiations with the Gulf Cooperation Council and India and the proposed new negotiation with Sri Lanka.

New Initiatives

The Labour –New Zealand First Coalition Agreement make reference to two new initiatives in the trade space.  The first is to “work towards a FTA with the Russia-Belarus-Kazakhstan Customs Union”. The second is to “initiate Closer Commonwealth Economic Relations.”  We are unsure what this second initiative might mean but if we are talking about a FTA negotiation it would come up immediately against the India problem.  On Russia etc the idea is potentially problematic.  First the Customs Union may have expanded to include Armenia and Kyrgyzstan (it is now known as the Eurasian Customs Union). Second the EU has a very negative view on this initiative at present because of the Russian misbehaviour in Ukraine.  This matter will therefore have to be handled carefully. It will be an interesting test of the diplomatic and negotiating skills of Foreign Minister Winston Peters.

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