PART 2. The Trans-Pacific Partnership. An Exclusive Interview with Ambassador of New Zealand Clare Kelly.

By Heidi Putscher

PROFECTUS: Were expectations at the end of the negotiations fulfilled, for example, for the dairy industry?

CK: If you look the comments of the New Zealand´s dairy sector, no, all expectations were not fulfilled. The New Zealand dairy sector would like to be able to compete on a level playing field in its key markets with the domestic producers of those markets. All trade in agriculture is complicated, because there are sectors that countries feel very protective of. Our dairy industry is aware that the process of removing barriers to dairy trade is a long process. What has been achieved through the TPP, in the US market in particular, is really significant for us. There will be considerably more tariff-free access for the New Zealand dairy industry than there was before the TPP started, that’s a net gain, but our dairy industry is ambitious and what it would like to see is no protection on trade in dairy products anywhere in the world. That´s a goal is going to take some time to achieve.

PROFECTUS: New Zealand to Mexicans is an unknown country. Do you think that the TPP will help to promote New Zealand to the Mexican people, not only for its goods and services, but also for its heritage and culture?

CK: I hope so. I think the New Zealand government has work to do as the agreement is implemented. We have to make sure that our own business people know about the opportunities in Mexico, which are enormous, but also that Mexican business understands the opportunities in New Zealand. At the moment, there is quite an imbalance in the way our countries know each other. For example 10,000 New Zealanders visit Mexico a year as tourists, while only 400 Mexicans are visiting New Zealand a year. The government is leading the way, it has negotiated a FTA with Mexico through the TPP and now is up to New Zealand business to discover what the opportunities are in this country. If there is more of New Zealand´s commercial presence here, the country in general will be better known in Mexico. 

Although I have to say, I´ve always been impressed on how much Mexicans do know about New Zealand. This is a very big important country and we are a small distant country, but most Mexicans have heard of New Zealand. They know a little about what it looks like because they´ve seen “The Lord of the Rings”, they know it was made in New Zealand, they know that New Zealand is a producer of agricultural products, they know that New Zealand has a very beautiful natural environment and is a strong promoter of environmental standards. Mexicans already know some important things about New Zealand, the TPP will continue that process definitely.

PROFECTUS: Where should New Zealand or Mexican investors look to invest? Which goods or services are in demand from Mexico or from New Zealand?

CK: My personal opinion, is that AGRITECH (Agricultural Technology) is an area in which New Zealand and Mexican companies can work together. Mexico has an extraordinary agricultural capacity, it is becoming a world power in agriculture. New Zealand is also a world power in agriculture and I think there is enormous capacity for our two sector to work together, particularly in dairy production and meat production that is based on pasture rather than grain. The dairy sector in the south of Mexico, where there is pasture based dairy farming, where there´s a lot of rain fall, that’s an area where New Zealand companies should invest in, not just in production, but in processing, in consultation, in provision of advice and technology to the industry.

At the moment New Zealand investment in Mexico is more in the manufacturing sector, taking advantage of Mexico´s extremely strong position in the US market and also of a very well educated work force. Mexico produces 150,000 qualified engineers a year and apparently they are extremely good engineers. New Zealand companies have invested in the manufacturing sector to take advantage of the proximity to the US market, a low cost production environment and also of highly trained engineering capability. There are more NZ companies interested in Mexico as a base for their world production, a lot of manufacturing worldwide has relocated from China to Mexico, because of the proximity to the US market, because of the NAFTA, because of the TPP, because of strong trade relationship, but also because of cost. New Zealand companies are beginning to realise this too and more are becoming interested in considering re-location in Mexico.

There has been also New Zealand investment in the financial industry, which I was surprised to learn about. New Zealand companies are quite innovative and they come out with innovative products. ICT companies are also starting to realise that they can sell the products they design for the US market in Mexico. Mexico too, is a very entrepreneurial culture. A lot of the New Zealand companies that are operating here, talk about the New Zealand - Mexico hybrid, that New Zealand and Mexican companies together, develop a particular type of hybrid working business culture that´s been very successful for selling NZ goods and services in Mexico but also to other countries.

In terms of where Mexican investors should invest in New Zealand, I think the food and beverage industry would be a very interesting investment for Mexican companies, especially in dairy research and production.  We have very advanced research and development in all the agricultural sciences.  Some of the big Mexican dairy companies could be very interested in production in New Zealand and also in access to the preferential trade arrangements that we have in Asia. Basically all our Asian markets are covered by FTAs. China is a good example, but also the other Asian countries. We have 40-50 years of experience of focusing very hard on Asian markets and a lot of Mexican industries are now looking to develop those markets for themselves and partnerships with New Zealand companies could work really well.

The tourism industry in New Zealand is another area where Mexico has extremely important expertise. Proportionally, tourism is actually growing all the time, we only have 4, 5 million people, we are starting to receive 3 Million visitors a year, so it´s a successful industry for us. Mexico has an extremely important tourism sector. New Zealand could benefit enormously form Mexican investment and participation in our tourism sector.

Education is another area where we could do a lot more. Something that is an interesting phenomenon is that Mexican high school students are going to New Zealand for their last year of high school. We attract students from all over the world to our education sector, but it is interesting to me, since I´ve been here, that the numbers of Mexican youngsters going to New Zealand to study is really increasing. It doesn’t need to be one- way traffic obviously. More New Zealanders would study in Mexico if they knew more about the strengths of Mexico´s Universities and the Mexican expertise in teaching Spanish, where Mexico could look to promote itself in New Zealand.

At the moment, there isn´t a lot of active promotion in New Zealand of Mexico as a destination for tourism or business. But this is changing - last year Pro Mexico opened an office in Melbourne, Australia, with very capable staff and part of their mandate is also to work on the New Zealand market.  As Pro Mexico gets to work in New Zealand, we´ll see much more interest from New Zealand in Mexico. People ask me about this a lot: Are New Zealanders put off coming to Mexico because Mexico´s reputation as something of a dangerous place?  I have to say “no”, they are not. We´ve got 10,000 people coming here a year as tourists, they are not put off by Mexico´s reputation. My personal opinion is that´s an unfair reputation, yes Mexico has its problems, but fewer of them than a lot of countries of the region. Mexico is a very exotic place for New Zealanders, but even so they don’t realise until they get here, just what a wonderful, beautiful and culturally rich country it is.

What New Zealanders import from Mexico is beer and mezcal, those are Mexico´s biggest imports to New Zealand and to Australia as well, but exports of cars, car parts and other manufactured products is really growing. There´s no barriers to the entry of products to NZ. But the whole point of negotiating agreements is to increase trade and when a market becomes familiar and easier to operate in, it becomes more interesting to operate in it and I imagine that this will just be a process in broadening our range of what we import from Mexico.

PROFECTUS: With this agreement a wider, regional economic integration through liberalization is expected. However, certain groups in New Zealand stand out feeling that their rights are jeopardized and left behind by the big players. Last week, protestors against the TPP took the streets of Auckland. Certain issues were raised such as New Zealand´s sovereignty being compromised, restrictions over generic and subsidized medicines, no limits to laws on land sales, foreign investors and corporations seeking in the future damages from countries who brake the TPP through the Investor State Dispute Settlement Mechanism or ISDS. Is this a consequence of fear or misinformation, with such positive numbers?

CK: These issues are always raised in discussions of international agreements, particularly in respect of trade.   Debate is healthy, I think it´s good that people are aware of this agreement and thinking about it and what the implications of it are.

There are groups in New Zealand (and in the world) which for ideological or environmental reasons don´t agree necessarily with an economic model geared towards economic growth and think it’s unsustainable.  Some people would like to restrain economic growth because of the impact it has on the environment, that´s a feeling that perhaps is not a very easy one to articulate, but there´s a lot of genuine concern, particularly because in New Zealand we have a strong cultural attachment to our natural environment.

Every country has its own specific situations to take into account in international treaty negotiation.  An example of one of ours is that the indigenous Maori people are partners of the government. The Treaty of Waitangi, which is the founding document of our country, guarantees the Maori people rights to their lands and other resources. Some people worry that the TPP will compromise the ability of the government to discriminate in favor of Maori, to ensure that their rights under the Treaty are preserved.  The TPP does not compromise this, because the government’s ability to take measures to ensure the rights of Maori under the Treaty of Waitangi has been preserved in every trade agreement that New Zealand has ever negotiated. 

People have similar concerns that the government will amend domestic legislation in a way that´s harmful to the interests of New Zealanders. For example, by removing rules and limits on investment, but this is something the government wishes to avoid, it doesn´t want to negotiate an agreement that is detrimental to New Zealanders.

Biggest concerns that many people have in respect of the TPP are around the funding of medications. New Zealand´s tax payers pay for the public health system and unless you feel that you need private health insurance, you can entirely rely on the public health system in New Zealand. This is an issue we all feel very strongly about, that access to quality medical care should be free and available to all citizens.

The government funds the provision of pharmaceuticals to the health system and the government agency that does that funding, PHARMAC, has to make some very complex decisions on how medicine is funded and which pharmaceuticals are subsidized by the government.  It is a worldwide respected system that seeks to deliver the greatest benefit to the greatest number of people through its funding decisions.

Some New Zealanders are worried that the PHARMAC system may be compromised by the TPP negotiation, thinking that pharmaceutical companies will have more power to lobby PHARMAC to purchase their drugs and  that the balance that we currently have would be altered. But it’s not the case.  The government didn´t want that balance altered, the government believes that the balance that has been struck in the negotiations is a fair one, is a good one and does not compromise the PHARMAC system, it does not introduce wider costs for consumers.

The government, as it always does on any negotiation, whether on trade, climate change, law of the sea, preservation of the environment, agrees to some obligations and in the process cedes a degree of sovereignty, but it looks for a balance of benefits. The government has negotiated an agreement that preserves that balance, achieving a greater market access and new protections in some very important markets, preserving at the same time the legislation and other protections that New Zealanders believe are most important.

PROFECTUS: What would it mean for New Zealand not to be part of such an Agreement?

CK: It’s an extremely important question and one that the government considered during the negotiation: what is the opportunity cost of not being in the TPP?

To be outside the TPP would have mean not having this trade agreement with some important markets and we would be disadvantaged in those markets relative to other countries. If we´ve been outside the TPP we wouldn´t have gained any new and improved market access.  Nor would we be part of this dynamic process of economic integration in the Asia-Pacific region.   The government decided that the balance of benefit had been achieved in the negotiation was in New Zealand´s favor.

PROFECTUS: You as New Zealand´s Ambassador, accredited to Mexico, are in one of the most interesting moments. How do you feel about it and about the future of your country?

CK: The TPP is certainly an extremely important trade agreement for New Zealand and for our relationship with Mexico.   It is a very interesting moment indeed.  Mexico and NZ have a very strong and active relationship and I only see it growing further. 

The future for New Zealand is strong, we came through the global financial crisis very well, because we have strong banking regulation, we never had a crisis in the housing sector that other countries had, so New Zealand wasn´t exposed in the same way other countries were. We have a diversified economy, we need to have diversified markets and at the moment New Zealand does have a concentration in the Asian markets and we are always looking to develop new markets. To develop the TPP was to establish a free trade relationship with the Americas, so we began the process.

New Zealand has some real natural advantages. We are able to produce food, and countries that have this ability are going to be in a strong position in the world. We can feed 50 times our own population. We have abundant water and that´s going to become more important. However, we are facing the same challenge everybody else is with climate change.  Our country is three little islands in the middle of an enormous sea, so we are more impacted by climate change than many other countries. We are not suffering as badly as some of our Pacific neighbors who are literally in danger of being swamped, but we are facing a lot of challenges and we are still measuring or assessing the impact that will have on our ability to go on doing what we´ve traditionally done well.  That is an issue that occupies a lot of the government’s time, attention and resources. We have to be extremely alert to the changes in our environment.

There are benefits and advantages to be on the edge of the world.  We’re a long way from a lot of the world’s trouble spots, but it also means we have to work pretty hard to be considered in the world and to be part of it. Whereas for example, European countries make up a huge continent, they have an enormous market that they can access very easily, they have joined together to form a union that allows them to pool their resources.  There are a lot of benefits from being part of a big group like that, too.

When we look how other countries function and what they do well, we tend to look, for example, at Denmark, Ireland, and Singapore. They are small successful countries of a similar size to us.  Ireland has just turned around a very difficult financial situation and recovered extremely well from the global financial crisis by taking tough measures. Denmark is an economically successful country, it preserves its environment, has a highly educated population, a very extensive social welfare system. Singapore has made itself one of the world’s most successful countries, creating one of the most technologically advanced societies in the world, with a small territory, the sea, very hard work and smart policies. When we look at this countries, we think about whether there´s anything in their example that we can emulate.

New Zealand at times feels small and distant, but there are benefits to isolation and some of the problems bigger countries have don´t necessarily come on our way. We have a pretty independent foreign, economic and trade policy.  We´ve made the decision to embrace the rest of the world and be as much part of it as we can, while steering our own course.

Go to Part 1 of the Interview.

2013-2016 All Rights Reserved Profectus Business Consulting Group, S.C.©

The Trans-Pacific Partnership. An Exclusive Interview with Ambassador of New Zealand Clare Kelly.

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 4^th, 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.

Sources: NZ Herald, Ministry of Foreign Affairs and Trade of New Zealand, CNN Expansión. 

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