When the going gets tough…

Trade liberalisation has been a tough gig of late, but recent developments, reflecting real grit from a range of countries, are cause for optimism. Of most immediate relevance, New Zealand and the four countries of the Pacific Alliance – Chile, Colombia, Peru and Mexico – have announced the launch of an FTA process, a trade deal with significant economic and strategic potential.

 New Zealand and the Pacific Alliance countries share similar perspectives as large agricultural producers and longstanding supporters of open markets.   Two-way trade already stands at NZ$1.1 billion, and the Pacific Alliance market is equivalent to the world’s sixth-largest economy, with 221 million consumers.   It is hoped that an ambitious, comprehensive and high-quality agreement will help to broaden and deepen that relationship, by eliminating tariffs and other barriers, opening up new opportunities for services, agri-tech and other sectors, and building a strong foundation to develop trans-Pacific value chains and links into other Latin American markets. (See the MFAT link here.)

The benefits go far beyond direct economic gains, however.   Three of the four Pacific Alliance countries are already TPP members, and the fourth – Colombia – is an ideal candidate for future membership.   The Pacific Alliance has also agreed to launch separate negotiations with each of fellow TPP members Australia, Singapore and Canada. FTAs among this group would demonstrate the value proposition of broad and ambitious regional economic integration at a time when overt enthusiasm for such integration, and indeed for globalisation more broadly, has been in rather short supply. (TPP-11 Ministers are also due to meet in the margins of November’s APEC Leaders’ meeting, to discuss the future of the TPP itself.)

These negotiating announcements come in the same week as Japan and the EU are preparing to declare that they have reached “political agreement” on an FTA – having resolved the final sticking points over cheese and car parts – although experience suggests that the champagne corks should not be popped until the finer details of the FTA can be worked out, which could take many months more especially given that unresolved elements include the highly contentious issues of investment protection and digital trade/data flows.  If agreed, the FTA would represent the largest and potentially most consequential FTA in the world, with economic gains expected to equal NAFTA and any eventual US-EU FTA.

Economic benefits aside, such an agreement would clearly also have important symbolic value, for the EU as it grapples with the implications of Brexit, and for Japan in the face of uncertainties over TPP. A recent report on levels of protectionism in G20 economies reveals the trend that, while US trade policy has become more protectionist this year, in other G20 countries protectionist actions have actually reduced somewhat. That said, the report estimates that nearly three-quarters of G20 exports still face at least some level of market distortion, and the White House has sought to abandon or renegotiate a number of existing trade deals and threatened to throw up trade barriers on steel and aluminium imports on “national security” grounds, which could cast a shadow over the WTO. G20 leaders, including US President Trump, are scheduled to come together at the end of the week in Hamburg for their annual meeting. Readers may recall the staunch rejection by US Treasury Secretary Mnuchin of boilerplate language about resisting protectionism and supporting free trade the last time the G20 met. It will be interesting to see if the gentle breeze of competitive trade liberalisation brings the US a fresh perspective on these issues. Certainly, it seems that for many other countries at least, that when the going gets tough…the tough get liberalising!

This post was prepared by Stephanie Honey, Associate Director of the New Zealand International Business Forum.