Protectionism and tariffs challenge the free world

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David Parker

Trade deals prepare New Zealand, and our region, to weather the coming global trade storm

In the face of rising global trade tensions New Zealand’s strong regional relationships are more critical than ever.

At the same time, the protection of the rules-based international order, through bodies like the World Trade Organisation, are crucial to world trade and in particular to small economies like ours.

Deepening relationships

This year the Government has redoubled its efforts to broaden and deepen our trade relationships, including the upgrade of our free trade agreement with China and good progress on RCEP, while joining like-minded countries in promoting and protecting the rules-based trading system.

Additionally, we are making New Zealand’s trade more inclusive and sustainable through our Trade for All agenda, which aims to ensure the benefits of trade are spread across the whole community, including small and medium businesses, the regions, women and Maori.

Protectionism, trade wars

Protectionist trade wars, such as the China-US tariff hikes, have worsened a slowing global economy, while nationalist policies, such as Turkey’s incursion into Syria, have caused fractures in organisations tasked with tackling regional and global issues.

In the past two years we have seen a 30% increase in trade protectionist measures – the biggest since 1995.

Protectionist measures will ultimately exacerbate the causes of the concerns of those who already feeling left behind. In short, they will make worse what they purport to make better.

Ensuring that our exporters have access to a broad range of markets is how we bolster them against an increasingly uncertain international trade environment.

Trade deals like CPTPP provide us with insurance against the threat to the effectiveness of the WTO.

Great deal with China

By anchoring ourselves to other regions, countries and economies, through agreements with legally enforceable rules, we tether the economy to calmer, more predictable shores, which in turn supports the jobs of some 620,000 New Zealanders.

About 67% of our goods exports are now covered under FTA rules, compared with 57% before CPTPP entered into force.

Meanwhile, the recent conclusion of the China upgrade ensures our trade deal with China remains among the best it has with any country. It lowers tariffs for our wood and paper products, locks in the removal of all safeguard tariffs for dairy products by 2024 and includes new commitments to environmental protections. This flows through to more jobs and higher wages in New Zealand.

The agreement on the text of the Regional Comprehensive Economic Partnership (RCEP), announced last month, was a significant milestone for New Zealand’s trade policy.

RCEP represents huge strategic, as well as commercial, value to New Zealand.

RCEP and India

Once fully concluded it will anchor New Zealand in a regional agreement with half the world’s population and markets that take more than half our total exports.

Under the RCEP deal virtually all issues have been agreed between 15 countries, with the aim to resolve outstanding issues with the 16th, India, in 2020.

I hope that can be achieved.

India is New Zealand’s 11th largest trading partner, with total trade in goods and services worth more than $2.6 billion. If India joins RCEP, this will give New Zealand’s exporters increased access to a market worth US$2.7 trillion.

The increase in two way trade with India would also significantly benefit importers of Indian goods through reduced trade barriers.

India and New Zealand have a longstanding and warm relationship and India’s importance to New Zealand is growing, reflecting its expanding economy, its growing geopolitical importance, and its increased international engagement.

We share similar political and legal systems as a consequence of our shared Commonwealth heritage, complimentary horticultural export seasons, common interests in the Indo-Pacific region, and existing business-to-business and people-to-people linkages.

Commonwealth links

Those Commonwealth links provide an opportunity to collaborate regionally and at the global level on shared good regulatory practices, to shape practical outcomes on the development of the digital economy and to promote the importance of a strong enabling environment for Small and Medium Enterprises (SMEs) to participate in the global economy.

We would encourage India to take an active leadership role within the Commonwealth Connectivity Agenda work programme, given the size and importance of the Indian economy in the Commonwealth.

One practical area where New Zealand and India share a common focus is on the Ease of Doing Business (EODB). New Zealand is a global leader in the area of public sector innovation and there are opportunities to develop a comprehensive bilateral work program that supports Indian ambitions at both the state and federal government level.

David Parker is Minister for Trade and Export Growth and Attorney General.

Without India, RCEP is low on potential

Venkat Raman

The East Asia Summit, held in Bangkok on November 4, 2019, held the litmus test for Regional Comprehensive Economic Partnership (RCEP) between the members of the Association of South East Asian Nations (ASEAN) and Dialogue Partners including New Zealand.

Regional pacts have had their use in Europe, Arab Gulf and Africa.

But a cross-border Treaty involving India has been challenge for this RCEP, since 2012 and despite 27 rounds of negotiations, there is no deal in sight.

Optimism overstated

New Zealand has a major stake in the process since its dairy products can find an entry into the world’s second largest consumer market (after China) through the ASEAN corridor since a direct Free Trade Agreement has thus far eluded progress.

But Associate Trade & Export Growth Minister Damien O’Connor was overly optimistic when he said that the Partnership Agreement will be signed by the end of this year.

New Zealand sees this RCEP as harmonisation of existing agreements between ASEAN, India, China, Japan, South Korea and Australia.

India’s concerns

As an agro-based economy, India sees flooding of its markets by foreign dairy and agricultural products as a serious threat. The country undoubtedly has the right to protect its farming sector but the policy runs counter to global partnership that it wants.

As expected, India decided to say ‘No.’

Commerce & Industry Minister Piyush Goyal said that India decided to distance itself from RCEP after its concerns were not adequately addressed by other negotiating countries.

He told Rajya Sabha, the Upper House of Parliament on December 10, 2019 that the deal in its current form does not provide a level playing field for India as it does not account for its huge population, unequal levels of economic development and human development indicators, contrasting levels of prosperity, investment capacity, cultural diversity and significantly different political and judicial systems.

“During the RCEP meetings, we highlighted that India has a relatively low per capita GDP as compared to other RCEP countries, and there are concerns about the livelihood of our farmers and employment generation provided by the industrial sector, particularly the MSMEs. India focused on its demand for a level playing field, fair trade practices, transparency and market access. We also repeatedly cited serious concerns regarding the non-tariff barriers to trade, and opaqueness in the subsidy regime in some RCEP countries, and sought credible resolution of such issues. In addition, to be able to take advantage of regional value chains, all countries must ensure that the rules of origin are not circumvented,” Mr Goyal said.

Larger benefits

As the Economist observed, “An RCEP without India would probably make South-East Asian countries an even more attractive destination for companies seeking to relocate some production out of China. Vietnam, which is also a member of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a trade agreement with Canada, Mexico, and Chile, would be particularly well-placed.”

But there is little hope, at least as we have written earlier.

The Prime Minister, Shri Narendra Modi in a group photograph with other world leaders, at the 14th East Asia Summit, in Bangkok, Thailand on November 04, 2019.

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