Tuesday, 23 June 2015 15:31

Trade talks on a knife edge

Written by 
Stephen Jacobi. Stephen Jacobi.

Either President Barack Obama gets legislation through US Congress for the Trans Pacific Partnership (TPP) to proceed or the trade agreement is all but finished, says NZ International Business Forum executive director Stephen Jacobi.

He remains hopeful Obama will succeed, because failure will have major consequences for his presidency and the US geopolitical situation. 

“I think some clever people in the US are going to pull this rabbit out of a hat. If they don’t we are looking into a very dark place for TPP,” Jacobi told Dairy News.

Trade Minister Tim Groser also told Dairy News the window of opportunity for bringing the TPP together politically is slowly closing.

Developments last week mean Obama now has a one-month extension, until end of July, to get the TPA (Trade Protection Authority)/TAA (Trade Adjustment Assistance) legislation through, which would enable TPP negotiations to proceed. 

Jacobi says even if that passes there is now no chance of TPP being concluded before the end of the year, pushing eventual ratification – if we ever get that far – well into 2016 and the US presidential campaign.

If the legislation fails it will be a major repudiation for Obama and a significant setback in his relations with the Congress, Jacobi says. Republicans will say he’s a lame duck president.

Obama has every reason to want to get this through as do a number of Republicans and Democrats. TAA, an existing programme of aid to workers displaced by trade deals, is favoured by the Democrats but needs reauthorisation.

“It defies logic that the Democrats have voted against it for political reasons. There are lots of reasons why TPP should come together but it is not the first time the US has dropped a very large ball on international trade.” The Americans under a Republican administration walked away from the WTO Doha deal and it never got back on the rails.

Jacobi says if Obama fails, other economies won’t want to play ball with the US on the TPP, which has been on the table for five-six years. “The outlook would be too uncertain for everybody to risk wasting further time on things that may never be delivered. At some point you have to bring these things to a conclusion. 

“Can it be resurrected in the next couple of years? Well maybe, but the world moves on. The fundamentals on why TPP would be a good idea remain. Those will look to be resolved in different ways,” Jacobi says.

“It is more likely concentration will be on the RCEP Regional Comprehensive Economic Partnership (RCEP); there’s negotiation underway in Asia, where America is not involved, among 16 economies including China, Japan and India. I think a lot more focus will be put on that.”

China might put forward other proposals. “We know China wants to show its leadership in the area; they might see some mileage in a new initiative that wouldn’t involve the US. Doing nothing is not an option because we still need better rules and a better environment for trade and investment and we need access to some of those markets.” 

Jacobi says either TPP moves towards a conclusion or there will be “something else”. “That has implications not just for us but for the US leadership. In economic matters and geopolitical issues it is much bigger than it might appear.”

Groser says hopefully sufficient congressional support will emerge to allow this package to move forward.  “But if that doesn’t happen, we also need to be realistic that it could be some time before TPP can be progressed.”

The Government has also been clear it will only sign up to a high quality TPP that delivers overall benefits for New Zealand.  “It’s not after a deal at any cost.”

Groser says NZ’s key priorities in the TPP process remain securing market access outcomes that provide commercially meaningful access for NZ exporters, including dairy. 

“That said, dairy remains one of the most sensitive issues in the TPP negotiations.  While good progress has been made, further work is required to ensure the end result is acceptable to NZ and aligns with the objectives Leaders have set for TPP.” 

Groser says the US administration has been arguing that US legislators should support the legislation so the US leads the development of regional trade rules.The implication is a failure could indirectly strengthen China’s position geopolitically.

China is obviously a key player in other processes such as the RCEP negotiations.   But NZ sees the issues in more complementary terms: TPP and RCEP can be complementary stepping stones to the vision of a free trade area of the Asia Pacific, which is estimated to produce larger economic benefits than either process on their own, and China and the US can both help to achieve that longer-term outcome.”  

Groser says NZ is already strongly positioned in the region with FTAs in place with Australia, China, ASEAN members, separately with Singapore, Brunei, Thailand and Malaysia, Chile, Hong Kong and an economic cooperation agreement with Chinese Taipei.  

“We are also working to bring the Korea FTA into force, and are currently participating in the RCEP (Regional Cooperation Economic Partnership) FTA negotiations. RCEP gathers together a different set of participants, who in some cases are and will increasingly be significant economic powers, including China, Japan, Korea and India as well as all of ASEAN. 

“RCEP markets take 60% of NZ’s goods exports, with a combined GDP of US$23 trillion and three billion population.  

“We are seeking to improve and/or establish our access to these markets.  We are also exploring ways to deepen NZ’s engagement with Pacific Alliance countries.  All of these processes are distinct from our participation in TPP, and provide significant opportunities for NZ exporters.”

Big deal better for dairy

A big trade deal like the Trans Pacific Partnership, involving a number of countries, could enable us to get access to markets with our dairy products which would otherwise struggle to get a deal with. 

Kimberly Crewther, Dairy Companies Association of NZ executive director, says the significance of TPP for dairy is the opportunity to markedly improve dairy market access in the region.  

“The negotiation includes Japan and Canada, both of which maintain trade-prohibitive import tariff levels (200-300%) on many core dairy products. Market access into the US and Mexican markets is also limited currently.

“There is a very thin market for globally traded dairy products. Trade liberalisation will also mean greater liquidity and lessened volatility.”

Trade expert Stephen Jacobi says our farmers in particular need access to some of those markets because, for instance, we don’t have a free trade agreement (FTA) with Japan and Japan has now concluded an FTA with Australia.

“Japan has been reluctant to conclude a bilateral FTA with New Zealand in the past. Australia has more to offer Japan in terms of access to resources etc and we present the Japanese with a number of problems, particularly in the dairy area, that they would rather not deal with. 

“We were looking to get those sorted out through a TPP situation with a bigger deal on the table and more people involved.”

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