By Heidi Putscher
Profectus Business Consulting Group met, in an exclusive interview for our blog, New Zealand´s Ambassador in Mexico, Clare Kelly, to talk about the signing of the Trans-Pacific Partnership Agreement or TPP, which took place in the city of Auckland, New Zealand, on February 4th, 2016.
The signing of the Free Trade Agreement (FTA) is the culmination of a long process of negotiations (see timeline) that ended last October in Atlanta, United States. Signatory members represent the 12 Pacific Rim countries: United States, Canada, Mexico, Peru, Chile, Australia, Brunei, Japan, Malaysia, New Zealand, Singapore and Vietnam.
The TPP will cover a market of 800 million people and represent 40% of the world´s GDP. Net earnings are estimated at 295 billion dollars a year.
Particularly, the TPP will represent for Mexico and New Zealand, a new relationship in trade between both countries and the other TPP members, enabling preferential access to the most important economies in the world.
Here, the first part of a two part exclusive interview by Profectus with her Excellency the Ambassador of New Zealand in Mexico, Clare Kelly.
PROFECTUS: Liberalization of trade between the TPP´s partners gives New Zealand more access to global markets than ever before. In your opinion, into what extent?
CK: The TPP means that for the first time, we have a free trade agreement with some of our biggest export markets, United States and Japan. Traditionally these markets have had very high tariffs barriers to imports of agricultural products, so the fact of having been able to negotiate reduction and or elimination of tariffs on our key export products to those markets is very significant to New Zealand.
We have a very strong free trade orientation, much like Mexico, because we have a small domestic market. We rely on our export markets to generate growth, being a very important part of our economy. We have FTAs with all our key Asian markets. We are the first developed country in the world to negotiate a free trade agreement (FTA) with China and since that agreement came into force in 2008, our trade with this country has quadrupled.
Before the TTP, 60% of our export markets were covered by free trade agreements. With the TPP signed, the proportion of our exports that are covered by tariff reductions or elimination will go up even further. We´ve also recently commenced negotiations with the European Union, an objective we´ve been working towards for many years.
The TPP is part of a long term strategy to make our exports as competitive as they can possibly be in the world market.
PROFECTUS: For New Zealand this FTA is the first one between United States, Canada, Mexico, Japan and Peru. It is a strategic way to gain access to the United States and Japan markets. Wouldn´t there be a competitive disadvantage, for example, when talking about domestic subsidies to American, Japanese or even Canadian farmers in contrast to New Zealand´s farmers?
CK: The New Zealand model of agriculture is extremely competitive. New Zealand removed export subsidies and domestic support for the farming sector in the 1980´s, continuously and deliberately, in order to make the sector as competitive as possible.
Dairy and meat exporters have been competing for 40 years in a very difficult market; virtually every country in the world has barriers to trade in agriculture products. New Zealand has a very long history of export of agriculture products, we have been exporting them for 130 years, since refrigerated ships were invented in the 1870´s. We have been doing this a long time and we have always competed in a market that put on extensive barriers on agriculture products, so our industry has become very good at producing very high quality products as cheaply as possible and for tailoring them to what the customer demands.
Also, we are lucky because of geography and nature, New Zealand is a place where rains quite a lot, therefore we are able to transform grass into animal protein in a very economical and efficient way. We are already competitive in those markets and relative to the domestic and local industry the TPP will only make us more competitive.
PROFECTUS: The US decided to tag along to the regional FTA in 2008, called at first the Pacific Three Closer Economic Partnership, which comprehended New Zealand, Chile and Singapore. Later on, it was known as the P4, with Brunei´s addition. Now, the American Congress will have to ratify the Treaty and apparently it won´t happen before the US Presidential Elections are being held. Many things may happened on the way. Does your Government has a Plan “B” if the Agreement doesn´t come into force, due to failure of the American or the Japanese domestic legislatures to ratify the agreement?
CK: Well, our government believes that it will be ratified. It would be extraordinary for the United States and Japan to put in the tremendous effort that they have, the resources they have invested in this agreement, if those governments did not think that it would pass domestic ratification process.
In terms of the Plan “B”, or maybe it is more accurate to call it Plan “A”, is always the World Trade Organization (WTO). New Zealand is a very active participant in the WTO. We were a very strong proponent of the Doha Development Agenda. New Zealand´s ideal way to achieve the kind of market access that we want, that we believe global trade needs, is through the WTO, because it´s an agreement of 155 countries, all of whom are agreeing to abide by the multilateral trading system. So, that is always a plan for New Zealand. But, over the last 10 years, it´s been extremely difficult to work through the WTO or to advance through the WTO agenda, though last year there was some very important breakthroughs. The trend has been instead to negotiate plurilateral regional agreements, because you have a smaller group of countries who have a strong political interest in concluding the agreements.
We think the TPP will enter into force within the time frame. That´s Plan “A” and “B”, but we will go on negotiating through the WTO and we will go on negotiating other trade agreements.
PROFECTUS: It has been said that China is waiting to see the outcome of the TPP and that it is preparing its own FTA for the region, if the TPP isn´t ratified by at least six signatories, who will represent 85 percent of the total GDP of the 12 original signatories.
In any case, New Zealand already has a FTA with China, which is one of your most important trade partners. Some say, that the international rules for the Asian-Pacific international commerce are being set by two parties, the United States and China. Does New Zealand has to choose between them, or stay outside either bloc as some people may think? What is your opinion on this?
CK: Both China and the United States are members of the WTO. The rules for international trade are determined by the WTO. Those rules have been in place for long time now, both China and the United States abide by those rules. Free Trade Agreements usually add further disciplines on trade, than what’s already in the WTO agreements, because otherwise there wouldn´t be a point to them; you can go further and faster on those smaller negotiations than you can go through the WTO. There is already a frame work of rules, so I am not sure where those comments come from or what is actually meant by them.
New Zealand doesn´t have to choose between the United States and China. We have our FTA with China since 2008, also with Hong Kong and Macau and now with the US. We have been WTO partners with both countries for a long time, so the question of choosing between one or the other does not arise.
PROFECTUS: Ninety-three percent of tariffs on exports to United States, Canada, Japan, Mexico and Peru will be eliminated according to New Zealand´s Ministry of Foreign Affairs and Trade (MFAT).
The reduction of tariffs and non-tariffs barriers will raise New Zealand´s competitiveness exports according to the Ministry, but Professor Tim Hazledine, of Auckland University´s business school, in an interview with the New Zealand Herald, argued “that the kinds of models used to try to quantify these effects” referring to competitiveness “depend on crude assumptions about how real-world markets function and their results are very sensitive to errors in these assumptions." He continued on saying that he suspects the effects will be asymmetric: "Large-scale overseas companies with close connections to their consumers will find it easier to tap into New Zealand resources than small New Zealand companies will find it to develop relationships with overseas consumers."
Do you have any opinions on professor Hazledine´s comments?
CK: Predictions of how trade will be affected by FTAs are not a perfect science. One has to look at what patterns of trade are and make assumptions from that is on how trade will continue once some very obvious barriers to it are removed, such as tariffs. None of us can predict the future with total accuracy.
When the government makes these assumptions, it looks at the outcome in previous free trade agreements and again, I will refer to the China FTA. With the China agreement, it was assumed that the agreement would add NZ$100 Million Dollars of GDP growth once it was entered into force. I don´t have the exact figures in my head, but I understand that actually the impact has been four times what it was predicted. China is now our biggest export market and the FTA has had an enormous impact on our ability to export our products.
I am not sure about the points that Professor Hazeldine is making about exploitation of New Zealand´s resources by overseas companies. New Zealand has, like most of the countries in the world, a framework of law around investment that has not been compromised by this agreement in any way. We have restrictions, for example, on the purchase of certain sizes of land, certain types of land, such as coastal land. Of course, it´s true that large corporations have more resources than small ones, we know that, but because New Zealand is already open to foreign trade and investment, the TPP doesn´t really make it much difference to the status quo. Companies that want to invest in New Zealand have always been able to do that.
In negotiating trade agreements the government is looking to increase economic growth. For New Zealand, trade is an important way to grow our economy – 30% of our GDP comes from trade.
PROFECTUS: Statistics released by your government have shown a saving in exports up to 259 Million a year once TPP has fully been implanted, while there will be only a revenue of 20 Millions in tariffs a year on imports. Isn´t it a small number in comparison to exports?
CK: The reason why we will benefit under the TPP more than some other countries from the removal of tariffs, is that New Zealand has already unilaterally removed most of its own tariffs. This was a process that started in the 1980´s as we thought to make our economy more competitive and more globally focused. Essentially, New Zealand only retains tariffs in some sectors which are arguably sensitive to imports. More and more New Zealand is part of a global supply chain and our imports are often products that contribute towards our exports, so it makes very little sense for the New Zealand tax payer to be taxing themselves to produce products for export. Only 30% or 40% of imported goods are subject to a tariff and the tariff is either 5% or 10%.
New Zealand has not relied on tariff protection to close its market to the world for many years, quite the reverse, we deliberately opened our market to international competition, because for a small country like New Zealand, for a tiny domestic market, it´s a sensible policy to follow.
Go to Part 2 of the Interview.
Go to Part 2 of the Interview.
Sources: NZ Herald, Ministry of Foreign Affairs and Trade of New Zealand, CNN Expansión.
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