Kate MacNamara: The thorny issues facing New Zealand’s new Trade Minister Damien O’Connor


There’s a new face poring over New Zealand’s portfolio of trade prospects, but in many ways Damien O’Connor is an old hand.

New Zealand’s new Minister for Trade will need that experience to secure any of the new markets the country’s exporters areeyeing (last term he was Ministerfor Trade and Export Growth and he’s held the export-heavy agriculture brief since 2017).

New Zealand has two important new trade deals under negotiation, one with the United Kingdom and the other with the European Union.

Exporters also retain somewhat dim hopes that under the presidency of Joe Biden, the US will join Pacific countries, including New Zealand, in the CPTPP free-trade agreement. The US helped negotiate its predecessor, the TPP, under President Barack Obama, when Biden was Vice-President, but President Donald Trump subsequently withdrew from the deal before ratification.

The importance of new markets is not so much that New Zealand is suffering for want of buyers for its goods, primarily dairy, meat, logs and fruit, and services like tourism and education. Rather, it is that New Zealand has only a tiny domestic market to cushion export shocks.

And abroad, this country has one behemoth customer: China. It soaked up about a quarter of our $83 billionof exports last year, a proportion that has been rising steadily. And in case that customer turns belligerent, exporters are keen to secure what many delicately call “optionality”.

Australian businesses arescrambling to find exactly that in the face of a fresh wave of Chinese trade retribution for Australian foreign policy that often favours its relationship with Washington. The country has also angered China through its efforts to curb foreign interference in domestic affairs, and by calling for an independent inquiry into the origins of the outbreak of Covid-19 in Wuhan.

Earlier this year, Beijing imposed stiff tariffs on Australian barley, put limits on beef imports and initiated an anti-dumping investigation into Australian wine. It is nowplaying a marginally more subtle game of blocking and hampering Australian products arriving in China, even as Chinese officials claimthere is no official policy behind the obstacles.

While New Zealand has so far avoided the kind of tension that has flared between Australia and China, that continuation is by no means assured.

Potential flashpoints range from efforts by the Chinese embassy in New Zealand to control the local population of diaspora Chinese, to the New Zealand Government’s regulatory refusal — short of a ban — to allow components made byChinese technology giant Huawei to be used in the country’s 5G buildout.

Our growing reliance of China has been the source of great wealth, but it has also brought mounting anxiety. And the concerns extend beyond China’s propensity to use trade as a lever in geopolitical disputes to the simple, sensible, practice of hedging bets.

There has been hope for years that a new trading bloc known as RCEP (the Regional Comprehensive Economic Partnership) would help bring us greater market diversity.

But RCEP is slated to be signed imminently, and nobody is more aware of its deficiencies thanO’Connor. It was hewho talked up the prospect of the $2.6 trillion Indian economy in the partnership last October when he flew to Thailand to help close the deal.

And he remained New Zealand’s lead minister on the file when, the following month, India withdrew in deference to powerful domestic interests that feared a deluge of cheap imports.

New Zealand already enjoys free trade with all of the group’s other members, and RCEP now offers very little beyond the status quo.

“A signing will be positive, but there’s no doubt that India was the jewel in that crown,” says former trade negotiator and government relations consultant at Saunders Unsworth, Charles Finny.

The UK likely constitutes O’Connor’s best hope of finding meaningful new trade in this term of government, though it is by no means assured. It is promising that despite the distractions of a pandemic, the UK has been quick to sign free-trade agreements (FTAs) with countries such as Japan and Switzerland, in large measure cloning previous bilateral agreements that covered the UK as a member of the EU.

But what the UK hasn’t done yet is negotiate a deal from scratch without an existing EU template to smooth the way. It’s starting at the beginning with New Zealand, even as it races to ink a permanent agreement with the EU before a Brexit transition period runs out at the end of the year. The deadline may not be met and difficulties in reaching terms with Europe could easily blur the UK’s focus on smaller deals, including that with New Zealand.

“I believe it’s possible for the UK to conclude a deal with New Zealand before the EU, but I admit it might not be practical,” says Malcolm Bailey, chair of the New Zealand Dairy Association, who is watching closely.

Nor are New Zealand’s negotiations with the EU showing early promise. Market access proposals landedthis year and Bailey, who represents New Zealand’s largest export sector, called them “insulting”. Market access is where trade negotiations frequently bog down, often for years, in wrangling over how much and which home markets to concede to foreign competitive forces.

In the meantime, exporters are getting nervous about another thorny issue, the unresolved question of how the UK and EU propose to split New Zealand’s tariff-free quota for goods currently sold into the EU including the UK.

The EU and the UK plan to split the New Zealand quota 50/50 next year, an arrangement that would allow significantly less market flexibility. New Zealand exporters have called the plan “discriminatory”. But so far, there’s been no resolution through the World Trade Organisation, where New Zealand and other similarly affected countries have taken up their case.

In the meantime, the backdrop to the world’s trading order has changed with the US election. And Biden’sascendancehas fanned hope that the world’s largest economy will adopt a more open posture to global trade after Trump’s years of rising tariffs.

But observers say it’s difficult to predict whether Biden will consider bringing the US into the CPTPP. “I think the one thing we can say is that it’s more likely now than it would have been in a second term for President Trump,” says Edward Alden, a specialist in US trade policy and senior fellow at the Washington-based Council on Foreign Relations.

However, he notes thatBiden’s advisers have already begun dousing talk of more liberalised trade, a difficult subject when so many Americans blame globalisation for stagnant wages and diminishing job prospects.

Others say Biden may return to the Pacific trade block later in the term (China is not a CPTPP member). The big picture remains framed by a technology war of sorts between the US and China. One where Chinese technology, epitomised by that of Huawei, threatens to dominate the next wave of digital infrastructure in 5G networks and the so-called “internet of things”.

“Biden talks about working with allies to combat this. And I think the carrot of trade with the US is part of that,” says Dan Ikenson, director of the Herbert A. Stiefel Centre for Trade Policy Studies at the Cato Institute in Washington.

It’s a snarl of competing interests that will takeO’Connor a long way from his West Coast farming roots. But while he isn’t interested in getting his hands on any actual American carrots, he’s certainly got some beef and butter he’d like to push.

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