The TPP issues covered in Ben Schaare's recent post connect to a broader trade context for New Zealand.
When the Uruguay Round ended and the WTO process stalled two decades ago, New Zealand’s trade diplomacy outlook was decidedly gloomy. The only preferential trade deal Wellington had signed was with its noisy neighbour across the Tasman, its largest trading partner, emigration destination, and source of foreign direct investment. As a very small economy (about 0.5% of global GDP in 2014), geographically isolated and with a competitive agricultural sector, gaining greater overseas market access for New Zealand outside the WTO was a daunting challenge. Failure to get bilateral deals with the United States (New Zealand’s third largest export market and source of FDI) or Japan (the fourth largest export market and fifth largest source of FDI) despite determined efforts from Wellington seemed to prove this painful point.
We are seeing the strongest signs yet coming out of the United States and Japan that the TPP could actually become a deal before President Obama’s term ends or early in the term of the next president. A successful TPP would likely add, finally, Japan and the United States to New Zealand’s growing list of preferential trade partners. A TPP in which New Zealand signs agreements with each negotiating member would bring Canada into the fold as well, New Zealand’s eighth largest source of FDI. Together, these three TPP members account for about one-sixth of New Zealand’s present FDI stock and exports.
On a parallel track, the ASEAN-led Regional Comprehensive Economic Partnership talks that aim to bring the 10 ASEAN economies and the 6 that have signed trade deals with ASEAN (Australia, China, India, Japan, South Korea, and New Zealand) into a new overarching deal are slowly moving forward towards the scheduled completion date at the end of this year. This deadline, like many with ASEAN, is best seen as an aspirational target. If the TPP, which involves 7 RCEP negotiating parties, is completed it will undoubtedly spur on centrality-craving ASEAN – and Indonesia which chairs the RCEP negotiations but is not in the TPP – to more concentrated negotiating efforts.
If the RCEP is completed, New Zealand will be able to add India, the 14th largest export market with high growth potential, to its list major markets dealt with. RCEP negotiations could also lead to better market access for New Zealand in key Southeast Asian markets than it presently has through the ASEAN-Australia-NZ Free Trade Agreement. The large but trade liberalisation-shy Indonesia and the Philippines that lack bilateral trade agreements with New Zealand come to mind.
While many commentators see the RCEP and TPP as competitive processes for New Zealand they are complementary. India, as shown by the slow pace of bilateral trade talks with New Zealand, is far from ready to sign onto a ‘21st-century’, ‘cutting edge’ mega-regional deal like the TPP and the same goes for Indonesia and the Philippines. The ASEAN-led RCEP process purposely highlights ‘flexibility’ and respecting the particular, often self-defined, circumstances of each country. This is music to the ears of India, Indonesia and the Philippines.
The assumption, often presented as fact by strategic analysts, that the TPP is primarily a US weapon and the RCEP primarily a Chinese one wielded in an existential battle for regional primacy is more of an attractive movie script than a reality. The RCEP is far from China-led or determined. The RCEP was established as a means for ASEAN to remain central and to ward off China’s East Asia Free Trade Area proposal that excluded New Zealand, Australia, and India. Membership in the RCEP requires a pre-existing trade agreement with ASEAN, hence the US exclusion. As for US support for TPP, it seems doubtful that public support for the deal by the American cattle farmers and the Five Nation Beef Alliance (Australia, Canada, Mexico, New Zealand and the US) is driven by the logic of grand strategic competition with China.
If these two complementary Asia-Pacific mega-regional deals are delivered then the European Union states (most noticeably and ironically the one emblazoned on the NZ flag) would be the only major trading partners lacking preferential trade deals with New Zealand. Congratulations are due to Wellington’s tireless trade negotiators for rising out of the gloom. Time for the EU delegation in Wellington and their masters in Brussels and Strasbourg to stand up and be counted. Every other trading partner of significance already has.
Malcolm Cook is Senior Fellow with the Institute for Southeast Asian Studies in Singapore and can be emailed at email@example.com.
Photo credit: Pete Souza/Official White House Photo