18 January 2018

UK’s trade relationship with Australia and New Zealand inquiry

Executive Summary

• This submission is made on behalf of the New Zealand International Business Forum (NZIBF)[1]. NZIBF is a forum of senior New Zealand business leaders working together to promote New Zealand’s engagement in the global economy.
• The UK has long been a significant trade and investment partner for New Zealand. The New Zealand business community wants to see this relationship continue, strengthen and deepen in future, including after the UK has exited the EU.
• When the UK is in a position to do so, there would seem to be a strong case to put in place new architecture for the trade and investment relationship, in the shape of an ambitious, comprehensive and high-quality free trade agreement (FTA). This would eliminate barriers to the flow of goods (including agriculture), services and investment and enable dynamic economic growth by removing behind-the-border impediments to trade and addressing ‘next generation’ trade issues. Any such FTA should encompass liberalisation of trade in services and have as one of its unifying principles the concept of regulatory coherence. Negotiating an FTA could also serve to thicken the relationship and commercial opportunities for our business communities by increasing awareness of each others’ markets.
• An ambitious FTA could potentially also facilitate the development of broader partnerships and stronger participation in global value chains spanning from the United Kingdom through New Zealand and into the Asia-Pacific region, taking advantage of New Zealand’s existing suite of FTAs in the region. This would have clear economic and strategic benefits for both sides.

Report

The New Zealand International Business Forum (NZIBF) provides a voice to articulate the needs and priorities of New Zealand’s business community on international issues, and in particular the importance of open markets and trade and investment flows, to the New Zealand Government and to others. The NZIBF Board brings together leaders from among New Zealand’s largest internationally-oriented companies and peak business organisations. NZIBF receives no direct government funding for its operating budget but from time to time receives funding for jointly-funded projects. Funding is also provided in respect to the policy advice and support NZIBF provides to the New Zealand members of the APEC Business Advisory Council (ABAC). This submission is made on behalf of the NZIBF membership. Individual members may have different or more detailed views relevant to their individual business interests, priorities and concerns.

NZIBF warmly acknowledges the longstanding and significant relationship between the United Kingdom and New Zealand, underpinned by shared history, culture, language and values, people flows and economic engagement of all kinds.   We believe that there is scope to transform what is already a very good, solid bilateral connection into a dynamic, modern, world-leading and mutually-beneficial relationship that better reflects the evolution of the way that we both live, do business, prosper and thrive as societies.

“The nature of two-way trade between New Zealand and the UK”

The UK is New Zealand’s 8^th-largest single market, accounting for around four percent of all New Zealand exports in 2016, and around 3.3% of imports.   It is also a substantial investment partner.  The New Zealand business community strongly wishes to see the existing trading relationship safeguarded and strengthened.  While New Zealand is by comparison a relatively modest trade and investment partner for the United Kingdom at present, it is clearly equally in the UK’s economic interest at least to maintain the current trade and investment flows, as well as to grow them.

An obvious way to achieve this would be to negotiate an ambitious, comprehensive and high-quality FTA – when the UK is in a position to do so. An FTA would safeguard existing opportunities and help to ensure that British exporters remained competitive with other third-country exporters who might otherwise enjoy preferential terms of access under existing or prospective FTAs.

There would also seem to be considerable potential for this relationship to expand in the future under ambitious trade rules that better reflect 21^st Century business and trade models. There are clear complementarities across sectors, production approaches, market demand and consumer sophistication – in the primary sector (including for dairy, meat, wine, horticulture, seafood, processed food and wood and forest products); in agribusiness/agri-tech and in other niche manufacturing, and in services such as education and tourism, professional and business services, financial services and more specialized areas such as environmental services and agriculture-related services. An FTA would remove any remaining impediments to trade and investment in these areas and foster greater cross-fertilisation of ideas, technology, people and capital.

New Zealand of course has market access ambitions for the UK market, including for agricultural products. New Zealand would expect an outcome that builds on, but does not undermine in any way, current access volumes and administrative arrangements. We acknowledge that there are likely to be sensitivities on the British side in relation to agriculture. But it is also noted that New Zealand is a counter-seasonal producer of many agricultural products and there is real potential for British and New Zealand producers to work together to offer year-round supply in a range of markets, grow brands and consumption, and to develop innovative and complementary approaches that draw on the best expertise, ideas, resources and areas of comparative advantage in each economy for mutual benefit.   Some such relationships have already been successfully established – for example Fonterra’s partnerships with UK dairy companies in relation to manufacturing dairy ingredients.

Such an approach could also help to equip UK producers and businesses to compete more effectively in the international marketplace – just as New Zealand businesses have benefited in terms of enhanced international competitiveness from exposure to the ‘testing ground’ of the Australia-New Zealand Single Economic Market before launching more broadly onto the world stage.

“To what extent a bilateral trade agreement with New Zealand would improve UK trade relations with countries in the Asia-Pacific, and whether the UK should instead pursue plurilateral agreements with them and other countries”

For business, the reduction and elimination of barriers to trade and investment, and the higher profile generated by the negotiating process itself, would potentially enable the development of new partnerships and networks into third markets around the Asia-Pacific region. New Zealand already enjoys a framework of ambitious and comprehensive FTAs with important trading partners in the region including Singapore, Chile, Brunei, China, Hong Kong, ASEAN, Malaysia, Thailand, Korea and (once the Comprehensive and Progressive Trans Pacific Partnership agreement has been concluded) with the CPTPP economies, in particular Canada, Mexico and Japan. New Zealand is also in negotiation with the four economies of the Pacific Alliance (Mexico, Colombia, Peru and Chile); with the participants in the Regional Comprehensive Economic Partnership Agreement (including India), as well as with a number of other economies.

A bilateral FTA could serve to burnish both Parties’ credentials as forward-looking and creative negotiating partners. Building broader constituencies and linkages between regions and across hemispheres are crucial to resilient, sustainable and inclusive growth, whether done in a bilateral model or plurilaterally.   An ambitious FTA can be an important building block in that exercise.

The Committee has questioned whether the UK should pursue either bilateral or plurilateral trade agreements, but in fact both approaches can work in a complementary way, with the one serving as a pathway or building block towards the other, and vice versa. In some cases, bilateral partners are able to adopt a more ambitious approach than a plurilateral setting would allow; in others, the larger negotiating trade-offs in a plurilateral environment can get agreements ‘across the line’ in a way that would be more challenging politically bilaterally.

“The extent to which any agreement could and should open up markets in services”

Any future UK-New Zealand FTA would be an ideal candidate for a ‘next-generation’ agreement which not only addresses tariffs and other market access issues at the border, but also focuses on behind-the-border issues such as regulatory impediments to services trade and digital trade.   (Any modern FTA should also of course cover a host of other issues including broader regulatory coherence, strong science-based sanitary and phytosanitary and technical barriers to trade chapters, the protection of intellectual property rights, measures to enhance the participation of small and medium enterprises in economic activity, investment and many other areas.

The services sector plays an important role in generating sustained economic growth in any economy; services trade liberalisation in turn can assist with domestic structural reform as well as helping to generate greater export earnings. While New Zealand and the UK are both already relatively open economies, including in services, and the UK is already a very strong performer in services trade, an FTA could offer important potential gains.

Many services sectors are still heavily affected by regulatory requirements that are discriminatory or go further than they need to in restricting trade in order to deliver domestic policy objectives.   There is potential for New Zealand and the United Kingdom to lead the way internationally in this area, reflecting our fundamental similarities of approach to regulation, legal frameworks and evidence-based, outcome-oriented policy settings.   Key sectors would seem to include financial services, professional services, ICT and other digital services, education, tourism, creative industries, environmental services, agriculture- and food-related services, research and development, and a range of backbone services that support global value chains, such as technical testing and conformity assessment services, logistics, distribution, wholesale and retail, insurance, financial and ICT services.A modern and comprehensive FTA should also address services trade-related policy-settings including measures to enhance the mobility of business executives, work visas and recognition of qualifications. Robust rules in relation to the digital economy, including for the free flow of data (with adequate safeguards for cyber security and consumer protection), must also be central to any such approach.

“How any agreement should approach regulation, including regulatory harmonisation”

The experience of New Zealand’s business community in international markets has been that regulatory settings can significantly enhance – or diminish – trade flows, even where those regulations may not have a “trade” target.   As more traditional trade barriers at the border have been progressively reduced around the world, non-tariff barriers in the form of domestic regulatory requirements have increasingly begun to add costs and erode margins for exporters and inhibit investment. “Regulation” is accordingly likely to be a key component of any future trade policy that the UK adopts, not just in relation to enabling imports into its own markets but also to encourage similarly trade-friendly approaches from its trading partners.

New Zealand has had extensive experience in addressing regulatory issues in FTAs.   We have used a range of models aimed at encouraging regulatory coherence and equivalent outcomes, making use of a range of instruments that are fit for purpose and as light-handed as possible, from sharing information and mutual recognition through to harmonisation, equivalence agreements, joint regulation and shared institutions. A process of ‘regulatory competition’ and shared learning about best practice enables stronger regulatory outcomes. This kind of flexible approach can meet domestic policy objectives while at the same time enabling sustained cross-border flows of goods and services.

More broadly, New Zealand is recognised as an international leader for its high-quality hygiene standards in terms of both our industry and regulatory systems in agriculture and food. We are also consistently ranked as having some of the highest and best-practice regulatory standards in the world on other matters such as animal welfare. For example, New Zealand is ranked first equal (alongside the UK) in animal welfare by the World Animal Protection’s 2014 Animal Protection Index Incorporated Index. New Zealand’s approach is well understood by the European Union, as evidenced by the European Union-New Zealand Veterinary Agreement signed and implemented 20 years ago.

Conclusion

NZIBF appreciates the opportunity to share its views on these issues and looks forward to continuing to engage on these topics in the period ahead.

ANNEX

NEW ZEALAND INTERNATIONAL BUSINESS FORUM: MEMBERSHIP

Executive Committee

Malcolm Bailey (Chair), Chair, Dairy Companies’ Association of New Zealand

Michael Barnett, Chief Executive, Auckland Regional Chamber of Commerce and Industry (representing the New Zealand Chambers of Commerce)

Philip Gregan, Chief Executive, NZ Winegrowers

Sir Graeme Harrison, Chairman, ANZCO Foods Ltd

Kirk Hope, Chief Executive, Business NZ

Peter McBride, Chairman, Zespri International Ltd

James Parsons, Chairman, Beef + Lamb New Zealand

Alan Pollard, Chief Executive, Pipfruit NZ

Simon Power, General Manager, Consumer Banking and Wealth, Westpac NZ

Brian Stanley, President, Wood Council of New Zealand

Philip Turner, Director, Global Stakeholder Affairs, Fonterra Co-operative Group

Steve Yung, Chief Executive, Sealord Group Ltd

Alternate Directors

Catherine Beard, Executive Director, Export NZ/Manufacturing NZ

Jeffrey Clarke, General Manager, Advocacy, NZ Winegrowers

Nick Kirton, Manager, Government Relations, Zespri

Jenny McGregor, General Manager, Trade Strategy, Fonterra Co-operative Group

Sam McIvor, Chief Executive, Beef + Lamb New Zealand
John Milford, Chief Executive, Wellington Chamber of Commerce

Executive team

Stephen Jacobi, Jacobi Consulting Ltd (Executive Director)

Fiona Cooper Clarke, Cooper Clarke Consulting (Associate Director)

Stephanie Honey, Honey Consulting (Associate Director, Lead Staffer, ABAC)

Christine Connon, Auckland Chamber (Board Secretary)

Tracey Farrelly, Business Central (Financial Manager)

[1] The views in this submission are those of the NZIBF as a whole. Individual members may have different views on specific issues covered in the submission.