Charles Finny on the US-NZ Partnership Forum

Comments By Charles Finny, CEO Wellington Regional Chamber of Commerce, To The US New Zealand Partnership Forum Meeting, Washington DC, Wednesday 7 October 2009-10-06

• We are in a period of substantial change in the global and Asia Pacific trading system and this has immediate implications for the trade policies of both the United States and New Zealand. The United States is no longer as dominant in either international trade or trade policy. If we are not careful the future agenda in the Asia/Pacific and globally will be set by others. Others who might favour models that most of us in this room would be less comfortable with than a model set by the United States and New Zealand. It is my personal view that since 1986 the United States and New Zealand have been very instrumental in establishing the current model, with a little help from our friends.

• Globally in the past 5 years we have seen a commodity boom, commodity shortages, skills shortages, and a flood of capital desperate for a home. We have also seen a marked decline in commodity prices, production surpluses, a contraction in world trade that was larger than that which followed the 1929 sharemarket crash, and we have seen a credit contraction of equally historic proportion. It has been an exciting period!

• Out the other side of this turbulence the Asia/Pacific and Middle East have emerged as relatively more important to the global economy. North American and Europe are still very important but they are relatively less important.

• In New Zealand’s part of the world China and several others have kept growing and most importantly, have kept importing. New Zealand’s recession was much shallower than many OECD countries because our international trade held up relatively well. China, India and Australia have kept our economy going. Many other economies in the region are also thankful for the demand from China, India and others. If we had been totally reliant on the US and Europe we would have been in real trouble.

• On the trade policy front the WTO has failed to deliver an outcome in the Doha Development Agenda negotiations. I still believe it will, but we are now looking at 2010 for the finalisation of modalities and to 2011 for the signing of the final agreement – at the earliest. And of course, APEC’s developed members will fail to deliver, as was inevitable because the model is wrong, on the Bogor Goal of free and open trade and investment by 2010.

• In contrast to the pace of progress in the WTO and APEC there has been a relative explosion of activity on the bilateral and regional fronts – the result is the famous Asia Pacific noodle bowl.

• New Zealand is as good an example as any. In the last 5 years we have negotiated and signed FTAs with the P4 (Singapore, Chile, Brunei and NZ), FTAs with Thailand, China and all of ASEAN. We already had FTAs with Singapore and Australia and a deal with Malaysia is due to be signed in the next few days. We also have negotiations well underway with Hong Kong, Korea, the Gulf Cooperation Council. Negotiations are due to begin with India. We also have the prospect of expanding the Trans-Pacific Strategic Economic Partnership to include Vietnam, Peru, Australia and the US. Some of these potential new partners are already negotiating the investment chapter of the Partnership.

• New Zealand is far from being alone in this promiscuity. The US, for example, has FTAs in force or pending ratification, with many in our region.

• There is a momentum building to simplify the noodle bowl. The is the long standing proposal for the Free Trade Agreement of the Asia Pacific, an idea that is now firmly on the APEC agenda. There are two big ideas being generated from Asia – the ASEAN plus 3 and ASEAN plus six models. And there is the Trans-Pacific Partnership. The routes we chose are going to be enormously important, not just for our region but also for the global trading system.

• Let me take this opportunity to reject an argument advanced by The Economist a few weeks back – the argument that the WTO process is being delayed because the major players see FTAs as a substitute.

• The WTO and FTAs tracks essentially do different things – they are complimentary not in competition. Disciplines around subsidies are a classic example of what has to be negotiated in the WTO for example.

• But while we shouldn’t see the WTO and FTA processes in competitive terms, we should not underestimate the impact that the FTA process can have on the WTO. For example, the services work undertaken in NAFTA and CER contexts had huge influence on what became the GATS. And we see in the current DDA a number of topics that gestated in APEC – fish subsidies, environmental goods and services and a number of the sectorals that the US and others want to add to the NAMA outcome are examples.

• My view is that what we are going to do in the next few years in the Asia Pacific could well, if done properly, have just as big an impact on the global system. It is for this reason that I get excited when I hear talk about the development of a new trade policy paradigm.

• The challenge is to make sure that this paradigm is the right one. This is best done in my view by the United States and trade policy allies like New Zealand maintaining control of the design of the new agenda. But we have to be realistic, if we fail, then there are some elsewhere who are very keen to take over the driving seat. We do not want to be left behind. For New Zealand we have the fall back of the ASEAN plus 6 process, but the ability of Australia and New Zealand to set the agenda in that context will be limited.

• This is why I see the prospect of the TPP as being so strategically important and so potentially exciting for the global trade negotiating agenda. We have the potential to get a significant core of 8 APEC members committed to a truly ambitious, high quality outcome, and outcome that could indeed become the new trade policy paradigm.

• If we get it right my firm view is that others will be queuing to join in. Initially those ASEANs not part of the original pact will be at the front of the line along with Korea. Don’t rule out strong interest from the three Chinas also. Eventually Japan, Canada and Mexico will have to join also. And expect interest from India and some of the non-APEC Latins to join also. We will have our FTAAP.

• This will clearly have enormous impact on the WTO. First, the new paradigm will help influence the agenda of any future WTO rounds. But more crudely, Europe, Africa and MERCOSUR will be under huge pressure to use the WTO process to negotiate terms as similar as possible to what we would have achieved in the Asia Pacific.

• We have a great opportunity to maintain control of the global agenda and trading architecture. The challenge is to make the TPP happen. I don’t much like the alternative, should we fail, and if I were a US policy maker or US industry, I wouldn’t like the alternative much either.

ENDS

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